A university student interested in financial planning came to my office to discuss the industry. He asked, “What is the most important thing for me to do to prepare to be a financial advisor?” He listed the potential classes he might take, and internships that were available to him, trying to give me a bigger picture of his options.
I asked him to consider the other areas of his life where he might need to hire professionals, and what qualities would be important to him. He mentioned several items but ultimately it came down to his answer that he would hire someone who had shown by his own experience, expertise in the field in which he worked. I asked if he would hire a contractor who lived in a run-down home and he agreed that he definitely would not.
With this question I had set him up for part two. I asked him to tell me about his own investment account and personal financial plan. He laughed and reminded me that he was a starving student without a spare nickel to his name. His answer was fair but I told him he could not expect to advise others on financial matters in which he had no personal experience. I encouraged him, no matter how small, to get started investing and learn by his own experience so that he could teach others.
I have often been frustrated with the financial planning industry. Although regulators are working on a uniform code of conduct, there are currently very weak standards that govern who can call themselves financial planners. I think this needs to change.
People often ask how to select an advisor. Obviously, education and certification are required pre-requisites (only 15% of financial planners are Certified Financial Planners®). But I would like to recommend another step, a bold step. When a potential financial advisor is interviewing you and asking lots of financial questions, turn those questions around. I believe clients have a right to know that the advisor has his/her own house in order. Advisors need personal experience and success in the areas they will be advising you in. You would be surprised how many there are who call themselves financial advisors but have little or no personal investments. The thought is absurd and scary.
Some years ago at a seminar I surprised the audience by posting my own investment allocations on the screen. I wanted them to know that I had personal experience in the things I was teaching them. I would like to see the regulators add a requirement that all who advise others on their investments be willing to disclose, at least at some level, their own personal investing experience and allocations. If you are looking for an advisor, don’t be afraid to ask them some personal questions. This is your life’s savings and you have the right to know the person trusted to manage it has their own financial house in order.
Years ago I had a client for whom I created a financial plan designed to get them comfortably to the end of their lives. A few months after the husband passed away, we received a call that was out of the ordinary. This nice lady needed $25,000 to pay for some remodeling in her home. I discussed with her that the amount requested would impact the financial plan and potentially put her at risk, but she was insistent.
Over time, requests for funds continued to come and my yellow flags were turning red. A financial advisor has a legal obligation to be alert for signs of fraud so I sat down for a serious conversation with this lady. She admitted that after her husband’s death she was very lonely but a kind man, (30 years younger,) had suddenly appeared to help her and they had become romantically involved.
We talked about other potential motives her boyfriend might have, and I cautioned her that her account was drawing down dangerously fast, but she was in love and could not be convinced. We require all clients to authorize us to contact a third party in such situations so I decided to call the lady’s daughter. Her daughter got involved but was also unable to persuade her love-struck mother. Shortly thereafter the account was mysteriously transferred from my office. It is a sign of potential fraud when criminals act to separate the victim from the people who care about them.
As you can imagine, once the money was gone, the boyfriend disappeared. The mother was devastated not only financially but emotionally. She had lost the love of her life, or so she thought. This is one reason we advise against major decisions following the death of a spouse. Death notices are public and unfortunately criminals can use them as a list of potential victims who are in a vulnerable state.
We learned at our recent company national conference that romance scams are becoming increasingly common in our digital world. Criminals today don’t need to move in with their victims, they simply use the internet, and dating sites, to create loveable but fictitious people and lure the lonely into phony relationships. They are very convincing and usually search out their victims first to learn their hobbies and likes to help create an emotional connection.
A major protection against being scammed is to remember that no financial fraud can occur unless money moves. As soon as money in any form is involved – stop immediately and re-evaluate the situation. A criminal cannot defraud you unless he can convince you to move money or assets. And you can be sure that before the request for money, there will be a strong play on your emotions. Help protect yourself right now by agreeing in advance with a trusted friend to consult with each other in any situation where someone makes an unusual request for you to move money.
An extensive exit poll this week demonstrated the vast divide in American politics. On each issue the respondents came down heavily along party lines. One question that stood out to me was, “How do you feel about the state of the economy?” Over 85% of Republican respondents said it was “Great” while over 85% of Democrats selected “Terrible” as their answer.
I can understand ideological differences over healthcare, immigration and other social issues but as a numbers guy I have a difficult time with varying opinions about the economy. Unemployment is near record low levels, GDP is high, growth is strong and earnings continue to outperform expectations. In just about every measurable field the numbers say that the economy has rarely, if ever, been better. So how can almost half of America consider it to be “Terrible?”
I suppose there are isolated situations but it’s hard to imagine any significant demographic that has not benefitted economically from the current growth cycle. Which leaves me to assume that unfortunately, politics has just become part of the human reality and we tend to see things through the blue or red lenses we wear.
Investors, however, don’t have the luxury of having their investment decisions clouded by colored glasses, at least if they want to survive and thrive. They must look at the numbers as they are, and attempt to predict where they are likely to go. Since I’ve already stated that the numbers continue to be positive, let me address how I feel the recent election might affect those numbers going forward. Let’s take off our colored glasses for a moment.
The 2018 tax cut greatly benefitted businesses and consumers and should continue to do so. Deregulation has been a strong positive factor for continued growth. A business-friendly attitude at the executive branch has spurred growth and development in many industries. Historically low inflation and interest rates have helped the economy and innovation continues to improve productivity. The big question is, will any of the above conditions change as a result of this election? The day-after market rally was Wall Street’s answer to that question. They were not cheering the democratic takeover of the house, nor the Republican gains in the Senate, but rather the financial peace that comes from assuming a divided congress will get very little done. From an investor point of view, a congress that can’t act, can’t hurt anyone.
I suspect that the next two years should see a continued pattern of growth as the mechanisms are already in place to allow that to happen. However, the areas of growth will shift slightly as the new political landscape makes some slight adjustments, so investors need to stay informed. Both sides won in this election and both sides lost. No one ever gets everything they want but I believe, as a financial advisor and a numbers guy, that investors just got two more years of economic growth, although perhaps just a little bit less than the past two.
This week I came across the original contractor’s design for our yard layout. The landscape architect really took his job seriously as I counted over 300 bushes and trees in his plan. At the time I thought he did a pretty good job and as we were moving in couldn’t help but be pleased with our beautiful yard.
What the designer failed to mention was the high level of maintenance the yard would require. For example, we planted over 30 palm trees. I love palm trees and just assumed they would be low maintenance. In the first few years I learned those palms needed more maintenance than our other trees, and the darned things just kept getting taller. I must say I wasn’t too disappointed when a very cold winter killed several of them. In fact, the following spring we pulled out a dozen more just to lighten our load.
We also had over 40 beautiful red rose bushes. Their color really made the yard “pop,” but we quickly discovered that we weren’t the only ones who loved them. Thousands of aphids found those roses so attractive every year that we finally gave in and pulled them out.
As I walked around the house this week I noticed how dramatically the landscape had changed from our original design. Bad weather, pests, plants overgrowing their space, and a desire to reduce maintenance all led to a current yard that is much simpler than the one we began with. Yet we love it even more. It turns out, in landscaping, more is not always better.
I compare my yard experience with the process by which people seek to build and maintain an investment portfolio. Most begin with exotic plans but as time goes by they find the need to tailor those plans to the daily realities of life. They discover that investing is as much about lifestyle and peace of mind as it is about rate of return. Some investments wind up being just too much work or stress, so they seek to simplify. Often if you trim things back and thin others out, you wind up with a more manageable situation that is not only simpler, but often better than you started with.
Just as I believe investors should not take more risk than their situation requires of them, neither should they fill their portfolio with more individual investments than is necessary. Having too much not only leads to more work but it can also result in investment overlap which complicates risk management. Red roses may be beautiful but my yard today is plenty beautiful without them. Likewise, investors should not feel they are missing out if they don’t own all the current hot positions. Review your portfolio regularly and don’t hesitate to thin it down if it has become overgrown with positions that require more work but don’t really add any extra value. In investing, as with landscaping, more is not always better, and it can often be worse.
Many who have come into my office have asked about a small green sweater that is framed and hanging on my wall. It seems a strange item for a financial planning firm, but the story behind it plays a significant role in my philosophy towards investing.
In 1921 my grandpa Jones opened a small knitting mill in Los Angeles. From the beginning he decided to run his little company based on two very simple principles. First- Be fair and honest with customers and employees. Second - Only produce the highest quality clothing, made from 100% pure wool.
The early years were not easy. Among other things was stiff competition from several other mills in the area that had chosen to use “fillers” in their wool. By mixing foreign material in the wool, the competition could keep costs lower, yet under regulations at the time they could still claim to be pure wool. This concerned Grandpa but he pressed forward with a firm determination to follow his business plan. When people bought a “Jonesknit” sweater, he wanted them to know they could trust the product to be of the highest quality.
The years went by and Jonesknit, despite receiving numerous awards for the quality of its sweaters, continued to struggle in a competitive world where price often had the final say. Suddenly, in 1929 the Great Depression struck and the garment industry was particularly hard-hit.
Amazingly, while competitors were shutting down, the sales of Grandpa’s sweaters grew. Public schools, large organizations and even the U.S. Postal service began to buy almost exclusively from Jonesknit. Not only were there no layoffs, but new people were hired and Grandpa was able to continue giving his employees regular raises. He learned that when times get tough, people can’t afford to waste their money on junk. They look for quality. Grandpas focus on quality resulted in his family and employees being cared for in comfort while so many were suffering during the depression.
The small green cardigan Jonesknit sweater in my office was given to me by my grandpa when I was eight years old. I admit to being pretty disappointed at the time, having really wanted another toy airplane that Christmas. But I have since come to appreciate the valuable message knitted into that sweater. During those times when the investing world is struggling and I am searching for appropriate investments for my clients, I glance over at that sweater and remember the lessons learned from grandpa Jones. “Focus on quality,” I remind myself, as those companies who do so are most likely to survive and thrive. I call it my Green Sweater principle and it has served me well for many years.
As the investing markets enter this current season of heightened concern and increased volatility, you can be sure I will be paying particular attention to the lessons of that old green Jonesknit sweater hanging on my wall.
I attended an airplane convention a couple weeks back and, as usual, I looked for the economic aspect of all I saw. Airplanes are expensive machines and the revenue numbers from the manufacturers can be a strong indicator of our economy. When times are bad, sales can be dismal since businesses not only can’t afford financially to upgrade their fleets, but they can’t afford it politically either. If you think back to the economic crisis of 2008, you will remember the investor outcry at companies whose executives were hopping around the country in nice corporate jets while revenues were falling. In an effort to calm the public outrage, we began to see a parade of CEOs openly flying, not only on commercial airplanes, but, heaven forbid, flying in coach.
At the same time the used market for airplanes was so flooded from companies dumping their jets, that I would be a rich person today if I had picked up some of those beautiful birds and just put them into storage for a couple of years.
Ten years later aircraft sales are booming and 2018 is shaping up to be one of the best in history for several manufacturers. Piper aircraft, nearly bankrupt a few years ago is now reporting record sales with back orders of some of their most popular models well into 2021. Interestingly, many Piper trainer airplanes are heading to China, a country just getting the taste of economic prosperity. For those of you worried about a trade war with China, keep in mind that the newfound love for limited capitalism in that country is not something they are going to want to walk away from anytime soon. I suspect both sides will quickly find a way to solve their differences.
The other big point that came from the convention was the update on the use of 3D printers. What was science fiction a few years ago has now become an economic reality that could dramatically improve corporate efficiency and profits. For example, manufacturers are now capable of printing many non-structural airplane parts. A simple landing light cover for my plane, a clear piece of plastic, currently costs hundreds of dollars. The high price results from the cost of producing and storing a part for which there is a relatively small market. With 3D printing technology that same part can now be printed on demand for less than $10. The efficiency of this system translated over thousands of other parts will dramatically reduce the costs to the manufacturer and to owners, resulting in a more efficient and profitable market for everyone.
Corporations tell us on a regular basis how they feel about the future when they give forward guidance, but sometimes an even better economic indicator is to watch their actions. People tend to vote with their wallet and companies and individuals spending record amounts on new aircraft is another sign to me that corporate America is feeling pretty good about itself right now.
We were on the mountain this week and Jayden and his friend wanted to go for an ATV ride. It was late afternoon so I let them go on condition that they were back by dark. Later on, as the sky darkened I was wondering when the boys might get home and realized I had given them bad advice. By telling them to be home by dark, I hadn’t allowed any room for error. There are lots of ways to run into trouble on the mountain, from a serious accident to a less serious mechanical breakdown, or simply getting lost. Even the most experienced riders can get turned around in the forest. By giving them instructions to be home by dark, I didn’t leave any room to go looking for them in the event they failed to show up. There is no cell service on the trails and once it gets dark, finding someone can be very difficult. Needless to say, we were glad to see them pull in just as the last light was disappearing.
Investors often come to me with an odd request. They tell me that since the markets are pretty good they want me to keep their investments overly aggressive but, to move them to safety if things change. It would be great if that were possible but the reality is, when the markets turn against you there isn’t always a lot of warning. Sometimes by the time the markets go dark, as it were, it’s too late to do anything about it. This is one of the reasons I emphasize taking a more balanced approach to investing. In a sense, it is like giving you room for error. A balanced portfolio, by design, may have some investments that are doing very well and others that may not be doing quite so well. Then the investments may switch places. The goal is to get a favorable rate of return overall, while not exposing yourself to more risk than is reasonable. It is a trade-off.
Since I didn’t give the boys any room for error, I realized that I had exposed them to too much risk. A simple flat tire could have become a major problem given the difficulty of finding help in the dark. By asking them to be home an hour before dark they would have had a little less time for fun, or perhaps a little less return as it relates to investing, but the price would have been worth the reduced risk. It has been my experience that trading off a little return in exchange for less risk can result in a more positive investing experience over time. As with four wheeling, a flat tire eventually will happen and when it does you will be glad you saved that extra hour of sunlight to help you find a solution.
I went for a lovely bike ride on one of my favorite trails this week. It is a paved city trail that follows a river for about 11 miles each way. On this particular day I felt like I was really on top of my game. I seemed to have unlimited energy as I clipped along at what seemed like a record pace. I was giving myself all kinds of pats on the back about how healthy I must be.
As I came to the end of the river trail, I took a quick drink of water and turned to head back home along the same route. Immediately I found myself struggling to get any speed and at first couldn’t figure out what the problem was until I realized that there was a pretty stiff wind blowing in my face. I remember thinking, “Where did that wind come from all of a sudden?”
As I struggled against that headwind all the way back home I had plenty of time to think about how little credit I gave the wind when it was pushing me along, but how much I blamed the same wind when it made my ride tough.
I compared this experience to my career as a financial advisor. I thought about all the times when economic tailwinds would push investors along, as in the current growth period. How quick people are to take credit for their investing prowess when they have a tailwind. I then thought about the economic crashes I have seen in my life and likewise, how quick people were to complain and assign blame to anything and everything except themselves when they face a headwind.
As I continued riding, and grumbling to myself about the wind, I thought about why it was that I rode in the first place. Initially, I started because cycling is good exercise but I also ride because I love the beauty of the outdoors. I realized that the headwinds, though uncomfortable, were not preventing me from fulfilling my riding goals. In fact, they were actually helping me. I was getting a good workout and was still able to enjoy the beautiful scenery, even a bit more with my slower speed.
As investors, we have a tendency to curse the headwinds while giving little credit to the tailwinds, yet we can control neither. The happiest investors I know take care of the things they can control, try not to worry too much about what they can’t control, and most importantly, take time to enjoy the journey along the way. Enjoy the tailwinds and be grateful for them. Endure the headwinds and don’t get discouraged by them. And most importantly, make sure you enjoy the ride.
While closing the hangar door after a trip I saw a little mouse run under at the last minute. I know the little guy was thinking that given the summer heat, life inside an air conditioned hangar was looking like a great option. What he didn’t realize was that we hangar owners don’t care much for mice, nothing personal, but they get inside wheel wells and crawl through engine compartments and can really make a big mess. So like the other hangars around me, every corner of my hangar contains a block of mouse poison that would surely ruin this little guy’s evening. So as he ran by I looked at him and said out loud, “Hey little buddy, this is not a good place for you to be. Get out while you can.”
Sadly, he did not heed my advice and the next time I visited the hangar we met again under different circumstances. It was just a mouse and nobody really likes mice, but still I felt badly for him. He wasn’t meaning any harm, just looking for safe place to live and a decent meal. He got neither. A hangar is a great place for airplanes, and I can’t think of many places I would rather be, but it’s a really bad place for a hungry mouse.
I thought about that little mouse while speaking with an individual about an investment they purchased several years ago. At that time the investing world was challenging, fear levels were high, and the heat of the day was leading many investors to seek shelter. This person had found just such a place. A place where they hoped to find a little safety for their money, and it seems there may have even been the promise of a good meal as well.
As time went by they came to realize that the safe haven they sought was not much different than my hangar was to the mouse. It seemed nice and safe at first but soon little financial traps began to appear. There were unexpected fees, restrictions on growth, investment limitations, and performance below what might have been suggested or hoped for. This investor realized that in attempting to escape the financial heat, they had gotten into a situation where their investments were simply not doing what they needed them to do, so they made the decision to get out.
Many make the decision to flee to a safe place when they feel fear, only to learn later that safety can be a relative word and often comes at an unexpected cost. If you have purchased investments that are no longer fulfilling your needs, or maybe weren’t even good to begin with, don’t be ashamed or afraid to make a change and get out, while you still can. You certainly don’t want to wind up like my little mouse.
On September 11th, 2012 an automated text message from the mayor of Santa Clara, Utah warned that the dam above my house was about to break. I raced home but before arriving received a call from my neighbor. He was normally quite a jokester but there was no joking in his voice when he said that a wall of water had just crashed through my house. “You don’t want to see this.” he said. And he was right.
Water is an unpredictable thing. The flood had come barreling down the street, crossed a field, and crashed through our French doors filling our house with over three feet of mud. It was as if the flood had singled us out for destruction. As bad as it looked, we had no idea it would take 18 months and over $200,000 to repair our property. As Launa and I surveyed the terrible scene I said, “What are we going to do?” She responded, “Start shoveling.”
We learned from our own personal 9/11 that sometimes bad things just happen. Despite all your best efforts, you can’t always predict or prevent disaster. I have helped many people through personal financial disasters in their lives. Job losses, medical emergencies, divorce, criminal activity, national economic collapse and many other unexpected disasters can put a real squeeze on family finances. There are things that can be done to prepare, but there is never a guarantee that your preparation will be enough. Life doesn’t really offer many real guarantees. I have seen people do everything seemingly right and still find themselves looking at a flooded life wondering if they will ever recover.
The thing to remember about proper financial preparation is that it’s like living a healthy lifestyle. You may eat properly and exercise daily your whole life, and still wind up with a heart attack before age 60. That’s just the way life is. But those first 60 years would have been much more enjoyable for having lived so well. In similar fashion, being financially responsible is not just about hoping to retire comfortably in your old age, but about living better in your younger years. It’s about having more peace and less stress in your life today, even if all your efforts can’t guarantee what might happen tomorrow. Doing what’s right today brings its own reward right now, and will also make whatever comes tomorrow easier to handle.
I may be a little sentimental but I still have several shovels in my hangar covered with Santa Clara red mud. I keep them as a reminder that despite our best efforts, disasters can still happen. They also remind me that our preparation before the flood made the disaster much more bearable. We can’t stop the floods of life from coming, but we can live better until they do, and get through them easier if we are prepared. Financially speaking, doing what is right today is always a good idea.
Hi, I'm Dan. I'm a CFP® Professional.
Securities and advisory services offered through Commonwealth Financial Network®.
Member www.finra.org / www.sipc.org , a Registered Investment Advisor. Wyson Financial, 375 E Riverside Dr, St. George, UT 84790
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