What's the Common Bond That All of Our Clients Share?

What's the Common Bond That All of Our Clients Share?
  1. Will you make it financially?
  2. Do you know your financial blindspots?
     

These two questions form the backbone of our holistic approach to personal financial planning. These questions also are the common bond that all of our clients share.
 

If your financial life is arranged so that you can maintain your current lifestyle for the balance of your life, the noise of daily life dulls into the background.  On the other hand, if you haven’t fully prepared for future financial realities, the ups and downs each day bring new angst. Recognizing where you have financial blindspots can be vital to crafting a rational plan towards a secure financial future.

Many important questions in life, these two included, require that you step back and assess priorities. No one has enough money to do everything they want. If retiring with more income is a priority, then making a tradeoff with current spending, (so that savings can increase), has to occur. One of the most prevalent blindspots we see is an unwillingness to accept tradeoffs.

No one wants to run out of money. Trying to determine if you have enough to sustain your lifestyle until very old age is more than just a simple math equation. The persistence of inflation; the exact ordering of investment returns; actual spending; and how long you will live are all important factors. Since none of these are knowable in advance, ongoing planning and course corrections should be expected.

Most financial blindspots can be traced directly to behavioral biases. These blindspots directly impact how you perceive risk. From being overly optimistic (overconfidence bias), to overweighting information that support your beliefs, (confirmation bias), the psychological blindspots are many. Professor David Hirshleifer, a finance professor at UC-Irvine recommends what he terms “self-distancing” in order to make better financial choices.

This involves considering the opposite side of the decision as a way of balancing the biases. We call this “dispassionate discipline”, a core component of what we provide our planning clients.  We all have these biases as they are “factory installed”. The key is acknowledging that these biases exist so that you don’t unnecessarily hobble your long-term financial objectives.

Our primary role is to help clients understand long-term financial history and use that overlay as a tool for better decision making. Rational and realistic financial planning can’t be built upon a foundation of myths and misconceptions. In the end, your ability to deal with question number two likely forms the answer to question number one.

James E. Wilson
Advisor
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James founded South Carolina’s first fee-only financial planning firm in 1982 and is a pioneer in the financial planning field. He has advised hundreds of successful individ ... Click for full bio

An Advisor's Guide to Helping Women Become Savvy Investors

An Advisor's Guide to Helping Women Become Savvy Investors

Today, more women than ever are involved in managing their personal and household finances. In a recent study, nearly half of the women surveyed (44%) stated that they are solely responsible for their household financial decisions, compared to 35% of men1. But the study wasn’t all good news. While women may be taking the lead when it comes to their finances, they also reported that they are not confident in doing so. In fact, in every financial category included in the survey, men reported much greater confidence than women. Where was the biggest gap? You guessed it: investing.

For advisors, this presents a challenge and an opportunity. There is a 90% likelihood that a woman will be financially self-reliant at some point in her life due to divorce, becoming a widow, or choosing to marry later in life or not at all2. By taking steps to help your female clients become confident, savvy investors, you’ll not only be more effective at serving in the best interests of these women and their families, but you’ll also be able to build much stronger, more trusted relationships to help ensure each family’s assets remain in your care for decades to come.

Follow these five steps to help your female clients invest with greater confidence:


1. Urge every woman to put her financial needs first. 


Women do have a weakness when it comes to planning for the future, but it has nothing to do with a lack of knowledge, skill, or smarts. Their primary weakness is a willingness to put others’ needs first. This is a huge mistake when it comes to planning for the future. Investing for retirement simply can’t wait until the kids are grown or aging parents no longer need care. In fact, based on average life expectancies, women should plan to accumulate enough funds to last at least 20 years after retirement. The following chart illustrates the power of compounding based on an 8% rate of return to help bring that point home:

This hypothetical example assumes an annual 8% rate of return and does not take into account income taxes or investment fees and expenses. This example is for illustrative purposes only and does not represent the performance of any specific investment. An investor’s actual return is not likely to be consistent from year to year, and there is no guarantee that a specific rate of return will be achieved.

2. Educate women about the power of investing.


Security about any topic is rooted in confidence and knowledge. Educating your female clients about investment basics can help drive more confident decisions and more positive long-term outcomes. From the basics of compounding to the nuts and bolts of researching options and understanding the pros and cons of different asset classes, make it your job to help every client understand what she is buying—and why.

3. Dive into the details of asset allocation.


Asset allocation is by far the largest determinant of a portfolio’s success—even more important than the individual securities selected and timing of an investment. This is critical information for your client to understand as she pursues her financial goals.

Related: Need More Referrals? 5 Steps to Building Stronger Word-Of-Mouth Influence

4. Discuss how her investment strategy needs to evolve over time.


Part of every client’s financial education should be to understand how financial needs and goals change with each stage of life stage. Because a shorter investment time horizon creates greater vulnerability to market volatility, she needs to understand the impact of shifting a portion of her investment portfolio to more income-oriented investments as she moves closer to retirement. This Life Stages Guide can help you paint a clear picture of how allocation strategies need to evolve to fit her changing needs.

5. Be sure she’s covering all the financial bases.


Smart investing is vital, but missteps in other areas of financial planning can thwart even the best investment plan. Offer every client a basic planning checklist that includes these three important steps:

  • Focus on the big picture. Organize your important financial papers and schedule an annual review of your investment strategy with your advisor. Regularly monitor your net worth—including your assets (all investments and savings) and liabilities (mortgage, credit cards, and other debts) to be sure you’re always moving toward your end goal of a secure retirement.
  • Pay down any outstanding debt. Debt reduces your net worth, threatens your financial security today, and reduces your ability to invest for the future. Do whatever you can to minimize debt, and build an emergency fund to help pay for any unexpected expenses.
  • Make estate planning a priority. Once a year, review your will and your beneficiary designations for every account to be sure they continue to reflect your wishes. If you have children under 18, work with your advisor or estate planner to establish a trust and select a trustee to ensure your assets are managed for the benefit of your children.
     

As a trusted advisor, make it your mission to provide your female clients with the education and guidance they need to become savvy investors and make the smart, educated financial decisions. By doing so, you can help every woman you work with not only enhance her financial security, but also gain the confidence to take greater control of every aspect of her financial life.

Click here to learn more about IndexIQ.

[1] Survey conducted by Regions Financial Corp. in partnership with Vanderbilt University, 2015.

[2] The Simple Dollar, “Guide to Financial Independence for Women,” 2014. 

Disclosure: The information and opinions herein are for general information use only. The opinions reflect those of the writers but not necessarily those of New York Life Investment Management LLC (NYLIM). NYLIM does not guarantee their accuracy or completeness, nor does New York Life Investment Management LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice and are not intended as an offer or solicitation with respect to the purchase or sale of any security or as personalized investment advice. 
Laura McCarron
Building Smarter Portfolios
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Laura joined New York Life & MainStay Investments in 2009, and is currently the Director of Value Add Marketing. She is responsible for the development of investor educati ... Click for full bio