All Things Financial Planning Blog


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When an ETF is Not a Monetary Investment and Other Random Thoughts


Due to increasing time demands, this is my final contribution to our blog here – and I’d like to summarize some points I’ve tried to make in this space before. ETF in this case, refers to Eat That Frog!, a wonderful little book with a big idea by Brian Tracy. The big idea is a simple, yet powerful one. Do the one thing first each day that you’d really like to put off doing the most. In good financial planning, we know we should pay ourselves first in a high amount (savings) but we keep putting if off because of other pressing obligations. Go eat that frog first thing today.

Do you know your personal rate of return? I’m not talking about what your mutual fund returned or your stocks or your bonds; I’m talking about calculating what you, individually have earned in the time you’ve owned each investment. This is different from an investment’s rate of return and the only rate that matters. Let me explain the difference.

INVESTMENT RETURNS RARELY OVERCOME A LACK OF SAVINGS

During the 20 years ending 12/31/2008, the S&P 500 Index averaged 8.35% a year. The average equity fund investor earned 1.87% in the same period due to behavior of buying high and selling low.

But it’s getting better! At the end of 2009, the average 20-year equity fund investor earned 3.17% per year.1 

What it really takes to retire – a LOT of money. More than most people think. For example, I am seeing clients that will go from $16k/month in income while working to $4.6k/month in retirement income due to a lack of savings. 

How much should I accumulate? Rule of thumb on savings (share this with as many young people as you can) – 17% of gross for future lifestyle and another 2% of gross for future healthcare expenses. This is the ideal from your first paying job. If you’ve been saving less, then you need to save more now.

How much can I spend from what I accumulate? Another rule of thumb – expect to withdraw 5% of whatever balance you’ve accumulated to make up your ‘paycheck’ in retirement. Add any pensions and social security to that (and any other known income) and you’ve got what you can expect to ‘earn’ in retirement.

Remember the 3 D’s of most good things for you and in life: Decision, Discipline, and Determination. Maxing out those three traits when you go after a goal (like saving) will be the key to getting it done. I’m going to go tackle some frogs – happy eating!

1 Dalbar, Inc.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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The Road Less Traveled


Another Memorial Day weekend for the books and the living was easy . . . It’s been awhile since I spent much time in a national park. This year for Memorial Day, my fiancée and I decided to hoof it through the Shenandoah Valley National Park from Friday through Monday. Having made reservations at the Skyland Resort, we arrived in time for a leisurely stroll Friday night prior to the Chef’s Table dinner. No kidding, you can have a fabulous wine dinner at a national park these days. We enjoyed wines from Washington state and Virginia. The food was outstanding; spring roll, endive salad, roasted spring onion and fig stuffed pork loin, Valrhona chocolate soufflé. So much for campfire dinners!

Later that night, a magnificent thunderstorm roared through. Early Saturday morning, the weather now clear and warm, we hit the stables for an hour-long trail ride. Midnight, my horse, was used to being the lead and this particular morning, relegated to third in line. Nevertheless, we saw beautiful forests as we walked along. The first hike we enjoyed was Hazel Falls and Cave. According to the reference book we were using, this trail was supposed to take 4-5 hours. We began a mild descent into a mesmerizing green carpet of soft grass under mature tall forest that took us along the path for about 5.4 miles in all. Knowing we were headed downhill most of the time, we knew it would take longer to come back – this is an in and out trail, not a loop. The last .2 miles were steep and rocky and then we were rewarded with amazing rushing falls and several caves. We stayed for a ham sandwich lunch with fruit. Heading back up, we took a gingerbread cookie break about halfway. The roundtrip ended up taking a little under 3 hours. 

The second trail of the day was Stony Man – an easy loop of 1.4 miles up to 4,011 feet and gorgeous views. Tired and hungry, we had another good hearty dinner in the resort dining room. Sunday morning we went to Hawksbill, the highest peak at 4,051 for another 2.8 mile loop. In the morning paper, there was a story about Bigfoot and I told my fiancée I wanted to see Bigfoot or a black bear on today’s hikes. Be careful what you wish for – we encountered a bear about 20 yards off our right early on Lower Hawksbill Trail. We watched him, he watched us and slowly we crept by him hoping he would stay where he was – and he did. I can tell you that particular trail went by in a flash and at the summit we got more panoramic views of the valley below. The last trail of the day was Rose River and Dark Hollow Falls, another 4 mile loop. The book said the trail was moderate in difficulty and here the book was pretty far off – it was strenuous the entire way and very, very rocky. Rewarded by endless falls, we were famished after 2.5 more hours.

Sore feet were a small price to pay for such beautiful and essentially free ($30 for an annual pass) weekend entertainment. The Skyland Resort is reasonable and rustic. If we had relied on the Trip Advisor ratings for the resort, we might not have booked it. I’m not sure how people’s expectations get so far from reality but our stay was in a clean, large room with private bath and big windows. 

What does any of this have to do with financial planning? The best financial planning in my mind always includes a way to put elegance into your life along with the other things you care about. So in this case, we took a risk by staying at the resort and were well rewarded with good food, good care, and good accommodations. We found elegance along each and every trail either in the forest or the people we came across. It didn’t cost a lot of money but seemed priceless on a few levels particularly in the quiet of the woods. No planes, trains, or automobiles, no radios, just occasional laughter and talking. We brought our own champagne to celebrate Sunday evening. We were able to drive there rather than fly. Do you have any jewels like a national park near you? I hope you discover a similar way to enjoy your summer that’s also easy on your wallet. Please share your Memorial Day experiences in the comments.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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Ways to Play this Summer!


Ways to Play This SummerCan’t afford $3K for an Italian getaway this summer? Not to worry – summer comes in many forms. Let’s take a look at what we can do for a very reasonable amount of money. As always, it pays to do the math to see if you are really saving money.

Sailing away – how many weekends a summer could you and your family commit to getting out to go boating? If you don’t own a boat, you can join a boat club or rent one on many lakes for the day. Although all boating is relatively expensive, boats are quickly depreciating assets so if you fund only those outings you can actually get to, say 4 times a summer, you can save a lot of money. Search the internet for boat clubs in any state where you’d like to boat.

Snorkeling – just about the cheapest way to see the undersea world, rent some fins, a mask, snorkel, and vest and get out there! Go to www.meetup.com and find a group going out to a beach near you.

Sand & Sea – go to www.travelzoo.com and plug in the summer destination of your dreams and start packing! Check the moon cycles and if you’re going to be on a beach at full moon, look for others there who celebrate these special evenings.

Wine festivals – want to cool down with some fine wine, fast cars, and beautiful surroundings? Head to the Finger Lakes Wine Festival this July and take in a car race at Watkins Glen while you’re there.

Concerts – here in Northern Virginia, we’re fortunate to have Wolftrap’s Filene Center and one of our favorite evening’s there includes the Louisiana Swamp Romp featuring Marcia Ball, the Dirty Dozen Brass Band, and more. We have our summer picnic spread on the lawn for this foot stompin’ romp complete with wine, food, and friends. What’s playing in your town?

Find a drive-in movie theater to enjoy on a warm summer evening. Rent a cool car for the evening to see it and then drive under the stars. If you can’t figure out how to make summer memories at a drive-in, all I can say is you’ve lost the kid in you.

Get lost – hit the trails and take only water, a camera, and a friend. Get in deep enough to hear some silence. Maybe you’ll get really lucky and hit an undiscovered stream to wade in. 

Same thing by car – don’t have a plan, stop in a town unknown to you, try some different food, and take in an unexpected tour along the way.

Summer can feel way too short – so whether you have small funds or time is tight, get out there!

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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It’s Hard to Be Me


It's tough being a financial planner sometimesI meet new people almost every day. It happens for multiple reasons, not the least of which is because I engage people in conversations wherever I go.  I do this because I’m interested in the people and their challenges and because it feels like time well spent. While I enjoy hearing their stories, they usually get a pained look on their face when we get into the story of my work. What if we’re standing around having a lovely conversation and on the topic of my work, which is financial planning, and I told you:

  • You need to save at least 17% of your gross pay for future lifestyle and another 2% for future healthcare costs, so let’s just round that UP to an even 20% of gross for annual savings;
  • You should carry these insurance policies: short-term disability, long-term disability, long-term care, life, auto, home/renters, and liability;
  • You should manage your taxes as part of your overall planning;
  • You should have three to five years cash needs on hand, and invest the rest in a diversified low cost portfolio; and
  • You should have a current will, health directive, and power of attorney in the state in which you live.

Wanna be my client? All of the above is true. But this kind of truth hurts. It sounds like a financial tsunami of work, pain, and deprivation. I wouldn’t want to be my client. So, I change up the story and it goes something like this: 

New acquaintance: “So, you’re a financial planner – whew! It’s so hard to save and I don’t really have any money. Besides my job is in jeopardy, I’m raising my kids, and helping my mom out. But my husband’s job is secure and everybody’s healthy.”

Me: “Those are wonderful things to celebrate – both your husband’s secure position and everyone’s good health! I know the pressure you’re feeling and I see this often in the lives of the folks I work with. It can take up to a year, but by the end of that time, they are stabilized financially and building for the future. Have you ever worked with a planner before?”

Most of the time, when someone is truly interested in their financial future, they decide to work with me to get past the roadblocks they have been faced with prior to our meeting. While the list of things at the top of the page is technically correct, there are lots of ways we get someone to a new, more stable place financially that includes a path that is digestible, workable and dare I say it, even fun along the way. It is often encouragement and discipline that is missing from someone’s efforts to get healthier financially. And if they’ve been accustomed to getting their ‘professional advice’ from a TV reporter or newspaper columnist, neither of which would have benefit of their particular details or have a fiduciary responsibility to put you first, we can almost always immediately improve their investment choices to lower cost and better funds. 

The prescription I have to share with clients can be tough medicine and that’s the part where it can be hard to be me – but truthfully, I have the best job on the planet. When clients work with me in their own best interest, wonderful things begin to happen and making that difference in their lives is humbling and affirming.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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Money Seasons – How Can We Get More Summer in Our Lives?


Money Seasons - How Can We Get More Summer in Our Lives?Is it winter, spring, summer or fall in your financial house? Following the solstice and assuming residence in the northern hemisphere, winter officially ended March 20 just after lunch and we’ll get to summer June 21 as we sit down to breakfast. Spring is that suspension bridge between the two. Some days are dark, wet and windy and others are filled with the music of birds, the tease of tree blossoms, and warm sunshine. 

What do the seasons mean to you? How can you get more summer in your life? And how can we connect the seasons of the hemisphere to the seasons of our financial lives? As I’ve written about before, we have a lot of folks stuck in their own version of a financial freeze – a never-ending winter. I’ve seen clients who quite literally hibernate when it comes to their own finances. I never wonder about how many winters I have left but I do daydream about how many summers I have left. And then my thoughts move to how I can get more ‘summer’ in all aspects of my life. 

To me, summer means: lazy days, sultry nights, cool drinks, light(er) food, the movement of water, the sound of water, the coolness of water, hot sun, sleepy breezes, the shade of  a good tree, longer light, more walks and more fun. I revert to a childhood delight of riding a bicycle without gears, with foot brakes, and no helmet (My sons are grown and so no fear of prying eyes to remind me of the helmets they wear). The feel of the wind in my hair is one of those treasured experiences that no amount of ‘common sense’ could convince me to alter for myself. 

I am frightfully full of common sense however when it comes to personal finances. Not only is it my life’s work, but I want as much ‘summer’ as possible in my life and that means I have do things in such a way that ensures I won’t have too many winters or freezes on my financial goals. 

So we’ve got just under 6 months until the Fall Equinox arrives about lunchtime on September 22 and another of life’s summers will be behind us. What can you get done between now and then to insure that your financial life is more like an endless summer? Start with savings – are you saving as much as you can and as much as you need? We know that somewhere around 20% of gross income is optimal and that 10% is not enough. Next take care of your health – we see retirees sending their hard-won savings off to health care bills instead of travel. Continue to build your communities and your capital – are your job skills where they need to be? Think about expanding who you know and developing the things that interest you outside of work. It’s always later than we think – the best time to get going is right now – as spring leads us into our next summer.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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Things That Make You Go “Hmmmmm “. . .


Things that make you go "Hmmm..."There are lots of things that don’t make sense on any given day but sometimes it feels like lots of things don’t make sense in a relatively short time frame. That’s what it has felt like to me in this new  year 2010 and I wanted to share some of them. Maybe these are things that make you “hmmmm” too. 

The government shut down for 4 to 4.5 days in February this year (you would think it would be obvious how many days it is, but it’s the government after all and it depends on which source you read) and at $100 million a day it was certainly expensive. What makes you go “hmmmm” though is that few people seemed to notice that it was even shut down. Since the world didn’t end (or blink) couldn’t we consider doing this on a monthly basis?

Reuters reports that there is little ethical discussion of what activity is ethical or not in a modern economy, even though 2/3 of those asked at the World Economic Forum said they believe our current problems are the result of a crisis of ethics and values.

There is this basic law of nature (the financial kind) called Time Value of Money and in a nutshell, it says it’s better to save the dollar you have today and earn either interest or invest it versus waiting until more time passes to do either. An essential piece of this is that once time has passed, it can never be recovered. So waiting to save and invest costs you many more dollars in the future than today. What makes me go “hmmmm” on this one is that when you’re young, full of energy and optimism and presumably healthy, this would be an ideal time to start saving up to 20% of your gross income so that later when a spouse, kids, house, job changes, starting a business, retirement come in later, you can weather those changes more easily and those early savings have been spending their days compounding! It’s like an installment plan in the direction of your dreams.

The turf regulatory wars may not require brokers and other colleagues to put their client’s interests ahead of their company’s interest. This is pretty basic — do you want your financial professional to put you first or their company first? Your legislators are not in agreement that you should be put first — “hmmmm.”

The average taxpayer gets a refund close to $3,000. If any of the taxpayers who are getting large refunds are also carrying credit card debt, they could be reducing their debt by simply lowering their withholding. 

There are lots of head scratching things going on in the world — lots of things that make you go “hmmmm”.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL


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A Confidence Game


A boy with his piggy bankWhat is the difference between financial confidence and financial independence? I define financial independence as accumulating enough money and property to no longer be dependent on employment for living expenses. Achieving this status is something most of us aspire to if for no other reason than to be able to retire from our day jobs eventually. It would seem that many folks are not going to achieve this at least on the timeline they’d hoped to. Already we are seeing retirees and near retirees who relied on hope, limited knowledge, and market returns to get them to independence by an age they determined long ago would suit them for retiring from employment.

Financial confidence is knowing that even if you do not have independence yet, you have resources you can tap to continue to work toward independence. Your health remains good, your mind remains curious, you can and still want to contribute. Financial confidence seemed in much greater supply before the market downturn in 2008. Now I routinely see folks who are worried about their ability to work, stay healthy, and save enough to get them to independence. 

At this moment there are some signs that the economy is turning around. As good as that news is, it doesn’t soften the impact of more than 2 years of financial pressure. Lots of people have reached the end of their ropes, financially.

Desperate times call for desperate measures. There is a very old tradition of a spiritual fast which is practiced differently by those who participate but in general it involves at least 3 days of water-only fasting followed by some period of light, healthy foods such as fruits and vegetables. My friend who does this finds much peace in the process. 

Is it possible to adapt the idea to your checkbook? Michelle Singletary, personal finance writer for the Washington Post, has a much stricter fast in mind in her new book, “The Power to Prosper: 21 days to Financial Freedom.” The rules of the fast are deceptively simple. She suggests not using your credit cards during the 21 days and for those 3 weeks buy only essentials, such as gas, food and medicine. And ‘food’ does not include eating out anywhere for those 3 weeks.

Could you do it? I’m not sure I could but I’m warming to the idea just to see if I really could. I think it might help my financial confidence a lot.

bonnieHughesBonnie Hughes, CFP®
Principal
American Capital Planning, LLC
Reston, VA / Miami, FL

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