Being Smart with $$ -- It's Free to Freeze. Your Credit, That Is.

It’s 80 degrees out and I’m Freezing.  And the best part is that now it’s free to Freeze!

As of last Friday, we will no longer pay a fee to freeze or unfreeze our credit at the three major credit bureaus.  Freezing your credit may provide the highest level of protection against identity theft and should prevent anyone from accessing new credit in your name.  It may be inconvenient when you need to apply for new credit but the protection this action offers may be worth it.  Compare the inconvenience of freezing your credit to that of having your identity stolen.  And did I mention it’s now free?

1. Equifax            https://www.freeze.equifax.com

2. Experian          https://www.experian.com/freeze/center.html

3. TransUnion     https://freeze.transunion.com

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart With $$ -- Your Choice: Smoke or Have $1,000,000

I saw someone spend $1,000,000 on cigarettes yesterday!!  Well, more correctly, yesterday I saw someone buy cigarettes and over their lifetime it will probably cost them about $1,000,000.  This 20-something smoker paid $11 for the pack.  If they smoke a pack daily between now and retirement, that is $11 per day not going into their long-term stock market account.  That cigarette money would likely be worth over $1,000,000 for them in retirement even at below historical, stock-market returns.  I hope that cigarette tastes REALLY good! Isn’t it time to make a plan for spending and saving?

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Does Talent Get You Higher Mutual Fund Returns?

When choosing a mutual fund, it is often said that you should pick a manager with talent who has proven that he or she can stand above the pack and give you superior returns.  It is said that talented managers can beat an unmanaged low-cost index fund even if most managers in a category cannot.  Investors may have followed this rule when choosing Janus Henderson Global Unconstrained Bond Fund managed by legendary bond manager Bill Gross.  Some argue that talent is worth the extra fee paid to the fund manager (about 0.68% extra versus a 75%/25% mix of a US bond index fund and an international bond index fund, a similar mix to how Mr. Gross’s fund is invested.)  But that extra fee is a hurdle an active manager must overcome before his fund can outperform.  You may already have guessed that you would have done better by buying the low-cost, unmanaged index-tracking funds.  Buying the Janus fund instead of the index funds cost you about 3/4% of performance annually over the last 3 years, a loss surprisingly close to the extra fee paid to the fund manager.  It was much worse in the last year where you lost over 4% of performance in the Janus fund vs. the index funds.  Additionally, Mr. Gross’s fund was more volatile. When choosing a mutual fund, perhaps your better bet is to opt for the low-cost, index fund that has a head start right out of the gate because it takes less of your money out of the fund.  That advantage has allowed index funds to outperform more often than not, and even talented fund managers know that index funds are hard to beat.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart with $$ -- Morningstar Report Shows Low-Cost Funds Outperform Again

Morningstar reports that in the first half of 2018, low-cost, unmanaged index funds (investment funds that simply track an investment benchmark but no human is deciding what to buy and sell) beat 64% of actively-managed funds in 9 categories, where a manager is paid to try to outperform. How is this possible? The active managers charge a high fee and they must do so well that they make up for the fee just to break even, and more often than not they don't succeed. Morningstar adds that managers keep some money in cash and when the markets rise that is a disadvantage. Morningstar’s report says that investors improve their odds of investment success by favoring low-cost funds over high-cost funds. A CNBC commentator (on 8/24) said that most mutual fund managers are afraid to trail their benchmark so they largely buy what’s in an index fund and then they are very likely to underperform because they are almost the same fund as the index fund except they have higher fees. Other managers have portfolios that are not close to their benchmark but investors in these funds not only have risky exposure to the markets but now they have additional risk that the manager will do poorly even if the markets do well. Low-cost index funds are looking pretty good for long-term, buy-and-hold investors. Choose your advisor and your investments wisely.

https://www.morningstar.com/blog/2018/08/23/actively-managed.html,

Larry Pike, CFA

Client Priority Financial Advisors LLC

Hourly, Fee-based Financial Planning and Advice

Being Smart With $$ -- Is your or your parent's trusted advisor really trustworthy?

Just because your parent trusted their financial advisor, doesn’t mean YOU should.  Many parents know no more about finance than their kids even though we think our parents know everything.  (Or if you’re a teenager, you think they know nothing.)  You may think your parents are in good hands with a trusted, long-term advisor.  You may even inherit money from your parent and stay with the trusted advisor.  But perhaps it’s time to find out.  Is the advisor trading daily in your account and generating commissions for him/herself?  Is he/she recommending appropriate investments that you can hold for the long term?  Are you being moved from one “load” fund to another that generates a fee every time?  Read this article for a cautionary tale.

https://www.nytimes.com/2018/08/24/business/brokers-excessive-trading-retirement.html

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com

Being Smart with $$ -- You Can Go Broke

You can go broke no matter how rich you are.  Kyrie Irving of the Boston Celtics seems to know that which is why he drives a $29,000 Jeep Wrangler even though he’ll make over $20 million this year (per GoCompare and CNBC).  He may have heard that 60% of NBA players are broke within 5 years of retirement and it’s similar for players of other sports (per a 2009 Sports Illustrated story).  How does it happen? The easy answer is that they spend too much.  Their situation is no different than for any of us; only the numbers vary.  Figure out how much you have, how much you make and how much you’ll need when you retire (whatever your retirement age is) and then you can determine how much you are able to spend.  Spend more than that and you’ll go broke. Spend less and you’ll probably be okay.  Whether you have $100,000 in savings or $10 million, the math is the same.  So follow Kyrie Irving’s example and remember that the future is expensive and it’s best to plan ahead.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com 

Being Smart With $$ -- Poverty is More Fun Than Being Rich...But....

Being Rich is No Fun! In many cases, we have the option to be rich but many of us choose to be poor because it is far more fun! Poverty is more fun if it means spending all your money on everything you want day to day. Being rich often means foregoing all those great toys and experiences we are offered. What does it mean to be rich? It varies in opinion but let’s say it’s having $2 million or more saved. If you power save starting at age 40 and invest $25,000 a year in the stock market earning 8% annually, by the time you retire at 67 you’ll have almost $2.2 million. VOILA! You’re rich! But only at the expense of missing out on that big house, fancy car and awesome vacations your peers may have had. So why would we want to be rich? So that in retirement you can maintain your normal standard of living and not have to work until you’re 90 (if you are even able to).  Reaching the age of 60 in a panic and realizing you have nothing saved is a high price to pay for enjoying decades of self-imposed poverty. Going from lobster today to Spam in retirement won’t be easy.  30 years of retirement requires a lot of money and a lifetime of saving can get you through it. And no matter how old you are and how far behind you may be, now is the time to create a plan to get you to your goals.

Larry Pike, CFA

Client Priority Financial Advisors LLC
www.clientpriority.com