Why I Have a Financial Advisor: Money Series Pt 5

Now, it may seem weird to you that I have a financial advisor – especially since I used to be one and own a financial advising firm with my mother. I’m sure it won’t be any surprise to anyone that my mother is my financial advisor. What can I say? It saves on fees.

Well, the reasons I have my mother manage my money versus managing it myself are largely the same reasons most people have a financial advisor. And those are because I don’t have some combination of the following:

1) Time
2) Interest
3) Ability
4) Resources

(For the record, mine is a combination of 1 and 2.) With that said, here is my inside scoop on what to look for in a financial advisor should you choose to have one.

Disclaimer: I am a financial advisor and own a financial advising firm with my mother. I am not being compensated by any entity or company for the following information. I am ONLY explaining what I do for my own family. If you should so choose to take this advice, please realize that it is not customized nor tailored for your specific situation. I am not dispensing personalized advice for you or your family. I am not responsible in any way, shape, or form if your investments rise or fall due to market conditions. YMMV. You have been warned.

1) Make sure you like the person. This seems like such a stupid reason. After all, there are plenty of likable people out there who should NOT be financial advisors. But ultimately, you’ll be discussing the details of your financial life as well as your hopes and dreams for the future (because let’s be real – that all requires money). If you don’t like your financial advisor, it’s going to be pretty difficult divulging such intimate information. Plus, you’ll be talking to them at least a few times a year. If you don’t like the person, you’ll put off meeting them, likely not follow their advice in a timely manner, and in general, waste everyone’s time.

2) Don’t get hung up on “The Best.” Just like the rest of life, “The Best” is a moving target and different for everybody. Whether it’s “The Best” advisor, fund, or stock, you’re most likely not going to have it. Or have it at the wrong time. There is no way out of the thousands of financial advisors you are going to have “The Best.” Even if you’re a gazillionaire, you’re not. Settle for good and competent. You want reasonable returns (whatever that means to you), sound advice, and a responsive attitude.

3) Don’t pay for a financial plan. Pay for advice and management. This is not to say that paying for a financial plan is a waste of money. Indeed, if you are confident that you will hold yourself accountable to following every single item on your plan, then, have at it. But let’s be real. You most likely won’t. Instead, you’ll have paid approximately $1,500-2,000 for a fat pile of paper that just sits on your shelf collecting dust while your financial house is still in shambles. Then a few years later, you’ll go through the cycle again.

Save everyone the trouble. Pay an advisor to manage your money. I wouldn’t necessarily give them full discretion over your funds (that seems unnecessarily trusting), but do follow their advice. Usually, this translates into a monthly fee. Think of it as having an advisor on retainer. Not only do you get to call them up and ask for advice any time you want, you also have someone actively looking at your account and managing it in a way that is consistent with your desires.

4) Along with #3, avoid paying per transaction/by commission. Now, realistically, some products are commission only. (eg: Annuities, life insurance, REITs) But for the most part, this way, you know that the advisor is recommending you buy/sell something because it really IS a good thing for your account (and not because they get paid a commission). As for annuities, life insurance, and REITs, they all have their place and can be good for you depending on your situation. Annuities and life insurance get pilloried quite often but in reality, I have highly recommended their usage. (Annuities especially since despite the higher cost, it’s the closest thing most people will get to a pension.)

5) Have as much of your assets at one place. I don’t mean one fund or one stock. I mean, have as much of your assets as possible held with the same financial advisor. Why? Because they will have a fuller view of your financial life and can give you better advice if they have the big picture. Also, it sounds awful, but financial advisors are only human. They will pay more attention to more money (because you are a bigger client). If you spread out your assets across several advisors, you are pretty much guaranteeing no one will look at your stuff.

Ok, that’s it for now. If I think of more, I will add it to this post or write another one. For those of you with financial advisors, what has your experience been? And for those of you without one, why haven’t you gotten one yet?

ETA:A friend asked me a great question on FB that I wanted to share with the rest of you.

I want to get started! Where do I start? It’s long overdue. How do you know which advisors are for you and your best interest? I thought of reading up on stock trading and understanding it, so I can do it myself. Signing up on Etrade? Talk to me. Lol.

Here’s my response:

I’d start by asking friends (especially those who are wealthier than you). Check out their recommendations. Or you can just walk into a Schwab, TD Ameritrade, or Ameriprise and ask for a broker on duty. Or, keep your eye out for seminars and attend some. Once you have some names, google and interview them.

Most advisors will talk to you and get to know you without charging you. If they do, run away. If they recommend you open an account or buy something with them before getting to know you, run away. Find out how they get paid. How do they decide or evaluate what is a good stock or fund? How do they determine when to sell? How often will they review your account? What type of clients are they looking for?

Also, trust your gut. If someone makes you feel uneasy, run. They may be perfectly honest but if YOU don’t feel comfortable, then they are not for you.

Most advisors end up with a book of business that looks like them. So you want to look for someone who is similar to you (except has time, interest, ability, and resources to do investments). You want someone who has similar values and world view.

Thanks for asking! Hope that helps. Feel free to ask more questions.

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Protecting Your Family: Money Series Pt 3

Sometimes, in the midst of nursing Baby3 or holding Gamera or staring at Cookie Monster, an insidious sliver of fear sneaks in and attempts mightily to dampen and ruin the joy of having my children. Sometimes, it is a nameless, general fear of suffering such as thoughts of my kids getting cancer, or getting hit by a car, or abused, etc. Other times, it’s a fear of my own death or Hapa Papa’s and that our demise will cause suffering to our children. (Yes, I know. My brain can be my own worst torture device.)

Once, when Cookie Monster was around fifteen months old and we were re-sleep-training him, he was crying super hard from his room. As any parent who has sleep-trained before knows, listening to your precious baby scream bloody murder is utterly horrible. Of course, I let him cry but my sadistic brain forced this scenario into my head: What if someone came into our house and murdered Hapa Papa and I and it was a weekend so my mom wouldn’t swing by our house until Monday and Cookie Monster was stuck in his room because of the gate and we were dead and covered in blood and he’d be crying and starving and thirsty and surrounded by our dead bodies for at least three days until my mom came by and it warped his brain and he turned into Dexter?

Hapa Papa woke up to me weeping in bed and Cookie Monster crying in his room. He thought something horrible had happened (something horrible did happen – albeit fictionally) and when he found out why I was weeping, he just shook his head sadly. I told you. I’m crazy.

Anyhow, two things bring me comfort as I teeter on the brink of hysteria obsessing over such happy occasions.

1) Statistically speaking, the odds of something happening to my kids or my husband and I are very slim. After all, the majority of people that I know of made it through childhood mostly in tact and live relatively normal, normally allotted suffering-type lives. So, just playing the odds, everything will be fine.

2) I beg God to be merciful and ask for more faith that no matter what happens, to believe and cling to the hope that God is good and will take care of me and my family and loved ones regardless of circumstances. This is very difficult so often, after praying, I resort to Method One of playing the odds. I know. I have such little faith.

These two courses of action are all mental and usually helpful in the middle of the night (which is when these fears sideswipe me the most). However, they are very impractical in terms of daily living. Thankfully, I am a financial advisor and though I am slow to take my own advice in the more morbid areas of my profession, at least I know what to do.

So, here are some steps I’ve taken to financially protect my family in case something happens.

Disclaimer: I am a financial advisor and own a financial advising firm with my mother. I am not being compensated by any entity or company for the following information. I am ONLY explaining what I do for my own family. If you should so choose to take this advice, please realize that it is not customized nor tailored for your specific situation. I am not dispensing personalized advice for you or your family. I am not responsible in any way, shape, or form if your investments rise or fall due to market conditions. YMMV. You have been warned.

1) Get enough life insurance. What amount is enough? That depends on whether you have kids (and how many), a spouse who works or stays at home, your spend rate, etc. For us, we took out approximately 10x Hapa Papa’s earnings on his life and 5x his earnings for my life in a combination of term and permanent insurance. We took out insurance on me even though I don’t work because while I may not bring in income, I do provide a service of monetary value (eg: childcare, house cleaning, etc.).

We got a combination of term and permanent insurance because although it is cheaper to just have it all be term insurance, we realized that term insurance is like car insurance: once you stop paying, you have nothing. Now, that doesn’t mean you shouldn’t have term insurance (or car insurance), it just means that you’re paying for something that admittedly, you never want to use, but once the need for it passes, you have no actual asset. So, the permanent insurance, although it is more costly, at least builds up as a monetary asset. Plus, if the need ever arises, we can “borrow” from the asset.

We also split up the total amount insured on Hapa Papa into several chunks. (eg: Instead of buying one policy of a million dollars, you buy two policies of $500,000.) We did that for two reasons.

a) In case we can no longer afford the payments on insurance, we can drop one or more of the policy amounts but still be covered with life insurance – albeit at a lesser amount. This is particularly important because we are young and healthy now, so our premiums are much lower. If we only had ONE large policy and could no longer afford the payments, we would have to drop the entire policy, then re-apply when we are older and perhaps LESS healthy – thereby, having higher premiums for less insurance.

b) In the case that we get older and no longer need as much insurance because the kids are grown or no longer under our care, we can drop one or more policies without having to re-apply for a smaller amount (for the same reason as above).

2) Get a will and living trust (as well as Power of Attorney, Health proxy, etc.). The living trust will help prevent our assets from going into probate (as long as they are titled in the name of the trust) and being tied up by the courts. It will also help us avoid some taxes and make the management and division of our assets clear and well delineated. The trust provides for the guardianship and financial assets for our children in case we both die. This seems MOST important to me since my children are young. However, obviously, the document will still be useful when they are grown.

One of the most important aspects of our trust were the disinheriting instructions. I wanted to make sure under NO circumstances was my father, his mistress, or their children could have any possibility at inheriting our assets or children. I realize that in order for there to be any chance of my dad getting my assets or kids, multiple branches of both my and Hapa Papa’s families would have to be wiped out, in which case, we have bigger problems than inheritance issues, but I believe in being prepared.

3) Get adequate umbrella insurance coverage. If you own a business or home, it helps to have this just in case some litigious-happy person gets injured (physically, mentally, emotionally, psychically) while on your property. While one can hope the people you invite into your space aren’t the suing type, as they say, “Hope is not a course of action.” Indeed, that is good advice in most life situations.

4) Get disability insurance. Whether through your work/employer or through  a company like Aflac, it’s a good idea to have some sort of disability insurance. You are more likely to be disabled than to die so, you know, it’s good policy to have it. (See what I did there?) That way, you’re not just running down your savings, you have 60-80% of your income coming in.

5) Make sure all your beneficiaries are up to date. This is pretty important. I am embarrassed to say that until we finally got our living trust done last month (it took me three years and three kids to finally get this taken care of!!), I hadn’t reviewed our beneficiaries since I opened our accounts. Hapa Papa had some of his IRAs going to his father – who passed away almost four years ago! I had some of my accounts benefiting my brother and my mother. Needless to say, I changed that RIGHT AWAY. (It’s all going to be mine, MINE, MINE!)

Anyhow, these are the things that we are doing to protect ourselves financially. Please note that most of these processes are time intensive (eg: getting health exams for life insurance, noting all your assets and accounts for the living trusts, etc.) but totally worth doing. You don’t want to have your family hung out to dry just because you were too lazy to carve out a few hours to get your financial house in order.

Incidentally, because I was so freaked out about the possibility of Hapa Papa and I dying while Cookie Monster was trapped in his room by himself, I began to run through scenarios of how we could prevent it from happening. I thought, perhaps I could call/text and check in with my mother every morning and evening so she would know we were still alive and didn’t have to run to our house and check on Cookie Monster.

I know this sounds entirely insane – and rightly so. However, if we didn’t have life insurance, living trusts, and etc., I really would be insane. If you don’t have this stuff squared away yet – get to it (even if you don’t have kids). Don’t leave a financial mess for your loved ones to navigate through. Do every one a big favor and get your shit together.

How Am I Going to Send 3+ Kids to College?: Money Series Pt 1

The thought is terrifying from a monetary standpoint. In about twenty years, I will have three children in college AT THE SAME TIME. Talk about poor family planning (from a paying for college standpoint). And if I do end up having four kids, I will have three kids in college for at least 2-3 years IN A ROW. They’re on their own for grad school, man. Geez.

You’ve seen the numbers. From 1985-2011, college costs rose 500%. (I don’t even want to know what it will cost me in fifteen years when Cookie Monster starts college.) As for loans, I suppose I could have my kids take them out, but have you seen the statistics? Plus, all that brouhaha right now about student loans and interest rates and how I know people who are my age who are STILL paying off student loans (both for undergrad and grad school) and how much that hampers them financially.

So what am I to do? If I can help it, I don’t want my kids saddled with debt (at least too much of it). I can’t count on scholarships (especially not athletic) because who knows how smart or hard-working my kids will be? Since my neighborhood is half Indian/Pakistani and half Chinese, I really have no illusions of them being at the top of the pack. (And I’m OK with that. Hapa Papa was nowhere near the top of the pack in high school, went to a state school, and makes SCADS more money than I ever did because he works harder and smarter than I ever wanted to. That’s another post for some other day.)

And no, I’m not going to move to a less competitive neighborhood because really, who doesn’t want their kids surrounded by smart, hard-working kids? If I don’t like my kids’ grades, then they’ll just have to work HARDER, not move to an easier school. (White flight, I’m looking at YOU!)

The only other recourse (in terms of helping my kids with their education costs) is to save aggressively and to save NOW. (Of course, they can also work in high school – and Hapa Papa has big plans for that – and college, too. Those are absolutely on the table!) This is when it totally helps to be a financial advisor (and to have a mother for one as well).

Here is what we are currently doing and hoping to do so in the future. Hopefully, this will help you, but I do realize that I may be in a different financial situation than you and your family so please don’t feel too bad or too smug if you are doing better or worse than we are. There are many ways to pay for school. This is just what I am doing for now.

Disclaimer: I am a financial advisor and own a financial advising firm with my mother. I am not being compensated by any entity or company for the following information. I am ONLY explaining what I do for my own children. If you should so choose to take this advice, please realize that it is not customized nor tailored for your specific situation. I am not dispensing personalized advice for you or your situation. I am not responsible in any way, shape, or form if your investments rise or fall due to market conditions. YMMV. You have been warned.

1) 529 Plans – These are plans that accumulate tax-free and are dispensed tax-free as long as you use them for qualifying higher education costs. The funds remain in our custody and we can switch the beneficiary at any time. (So, if Cookie Monster gets a full ride and doesn’t need this money, then I can transfer the funds to Gamera or Baby3.)

We opened an account for each child as soon as I got their Social Security numbers. I seed it with some money and then contribute about $100/mo per account. I would put more in here, but because it can only be used for higher education costs, I don’t want to put TOO much money in here just in case the kids don’t end up at college or whatever.

2) UGMA/UTMA Accounts – These are just regular savings/investment accounts for my children. I am the custodian but my kids are the ultimate owners when they hit either 18, 21, or 25 (For CA). (I am pretty sure I chose 21.) After that, the money is theirs to do with HOWEVER THEY WISH. Somewhat terrifying, but hopefully, I will have taught my children how to handle their finances well and to make good decisions. I do have to pay taxes on these accounts, but since they’re children, the tax rate is not as horrible.

Any gift cards/checks/cash I received during baby showers, gifts, birthdays, Chinese New Year, etc., I put in here. (In the case of gift cards, I just use the gift card and deposit a corresponding amount into their account.) As with the 529 plan, as soon as I get their Social Security number, I open an UTMA for my kid and deposit a “seed” amount. Then, when they receive money, I put it in their accounts – even if it’s as trivial as a few dollars for a birthday or Chinese New Year. (Usually, I round up and add something on top of it.)

If Hapa Papa gets a bonus at work, or sells some stock grants, or whatever, I will take either all or a portion of it and apply it equally among the kids. If we happen to get a really nice financial gift from family, I do the same. Whatever “extra” money that comes our way, I will always consider putting it in the kids’ accounts. (Unless, for some reason, we need to replenish our emergency fund, our IRA contributions are coming up, or property taxes are coming up, I usually put some in the kids’ accounts.)

Also, any time there is a new baby, I will not only seed money in the new baby’s account, I will also add some money into the older kids’ accounts. Not as much, of course, but some.

3) Aggressively pay down all other debts. That’s pretty self-explanatory. We paid off our mini-van last year ahead of schedule thanks to a stock grant, and we pay extra on our principal for our mortgage every month. Every now and then, we also send in a fat chunk of a bonus or severance or stock grant to pay down the mortgage principal even more. Our goal is to pay off the mortgage before Cookie Monster starts college. We are very lucky that currently, our mortgage is our only debt. This may change if we have to buy a new car later down the road or if we have to get a bigger house when the kids become teenagers.

4) Save aggressively for our retirement. This may seem strange to include as part of the kids’ education savings, but it makes perfect sense to me. The more we save now, due to the time value of money, the less we will have to put away when we’re older and much closer to retirement. In other words, when the kids are in college, we will not have to be scrambling any more than usual to come up with money both for college AND for retirement. The retirement money (barring some horrible economic downturn AGAIN) will already be there.

5) Have the kids work. My parents paid entirely for my education and as a result, I don’t think I took it very seriously. I have been coddled pretty much all my life. Hapa Papa, on the other hand, had some scholarships and worked his way through college without any substantial help from his family. I would like my kids to have something in between.

My current plan is to have the majority of tuition and board as well as some “fun” money for my kids covered. I will give them a monthly stipend and if they run out, they’re out. If they need more money, they can work for it. Also, Hapa Papa is thinking that some day, he’ll start his own consulting firm and farm out work to the kids. He’ll pay them and yes, they can spend some of that money, but a good portion of that will be forced into their college savings account so that they will also pay for their college in that way.

This, of course, is the highly speculative portion of my plan. The kids obviously cannot work now. (Such slackers! Their fellow Chinese kids are making clothes right now! Lazy bastards.) We have no idea if Hapa Papa will ever open up his own shop. We don’t know if college will even be relevant in the future (although, likely yes). But that is our plan for the moment.

I know that we are very fortunate to have so many options. Many folks do not have enough money after necessities to set aside for their kids (let alone for themselves). I would say in terms of priorities, take care of your daily needs first, then emergency funds, then retirement, then kids. No one will give you a loan for the first three, but the last one, there are plenty available.

Again, when I think of all these resources I have available for both myself and my children, I am overwhelmed with gratefulness and guilt and relief. We always want the best for our children – no matter what our circumstances. So I have no doubt that the folks who cannot provide as much for their kids would OF COURSE, do so if their circumstances allowed it. Ultimately, money is important, but there are plenty of children who grew up without a single financial want who have huge holes in their souls due to other unmet needs.

Hrm. Didn’t mean to get all Hallmark on you there. I just know that because of Hapa Papa’s job, we are able to provide much for our family without too much hardship. It isn’t fair; I’m sorry. My only hope is that we can be generous to others as well as ourselves.