Even with the equation of snacks to cash equivalents and the fact that Mr. Robinson eerily resembles my father-in-law, there’s a great message hidden in here: the markets are resilient, diversify and RELAX. Oh, and learn how to hunt.
I am frequently asked: what is a “fee-only advisor” and why should I work with one? First, a fee-only advisor’s compensation comes directly from the client. The advisor does not receive any commissions or referral fees from selling financial products (such as annuities, insurance or investments). A fee-only advisor may receive compensation from assets under management, retainer fees or an hourly rate. I focus the majority of my business on retainer fees.
In contrast, a “fee-based” advisor receives compensation from both charging a fee for completing a financial plan and from commissions on the products recommended as part of the “implementation strategy.” Many times the financial plan is offered at severe discount. Their real profit comes from selling you the products they recommend. Their belief is that by charging you a fee for their “objective” advice you are more likely to “implement” the strategies they recommend.
A commission-only advisor makes his compensation strictly from selling you financial products that have a “load” or commission attached to them. In my humble opinion, I tend to trust “commission-only” advisors more then “fee-based” advisors because you know they are only getting paid from what you buy from them and they do not have any ulterior motive in offering you a “plan.”
I personally believe each of these advisors has a place in the financial service industry. However, the main thing I ask from each one of them is to disclose to the client how they are going to get paid. The main reason why you should work with a fee-only advisor is they can give you objective, unbiased financial advice free from the potential conflict of interest inherent in product sales. Yes, the fee-only advisor is still selling to you, although the “product” he is selling is an education and trustworthy advice.
When it comes to your money follow this common sense rule: “When you know how your advisor is getting paid you will know who he is really working for!”
You may find this article from Money Magazine interesting: http://money.cnn.com/2007/09/27/pf/planner_advice.moneymag/index.htm
I believe one of my greatest responsibilities is to help my clients avoid extremes. It seems like there is a lot of “extreme” talk right now. I hear it everywhere. Regarding politics, this is either the worst time in American history (if you are a conservative) or this is the beginning of a new era of Enlightenment (if you are liberal). I hear it with sports as well. How many people said the last Super Bowl between the Saints and Colts was the best Super Bowl ever? How many times did you hear reporters ask Coach K if he thought this year’s Duke team was the best ever? How many people are already comparing LeBron James to the all-time greats of NBA history? On the other hand, how many people would watch “Makeover: Home Edition?”
The reason why I say this is to show you how all this “extreme” talk effects people’s view of their finances. When people believe the investments they own will either go to one extreme or the other, then they will make an irrational decision not based on the facts, but based on fear or foolishness. It is my job and the job of any Financial Advisor worth the fee you pay him to help you avoid the “extremes” regarding your financial life and financial decisions. It is okay to be concerned about the future of the economy and to invest more conservatively or to feel a need to invest more aggressively because you think the market will go up. However, it is not okay to go extreme! The saying is true: Do not put all your eggs in one basket. The basket is your emotions and it is important to know the facts and to make decisions based on facts, not the latest idea conjured up by the talking head on TV or the “guru” you read about in the paper.
If you are looking for financial guidance, I encourage you to seek out a Financial Advisor that can help keep you from making “extreme” decisions about your money. You do not want a “yes-man” who is only looking out for themselves but rather, you need to look for an advisor that will keep you and your emotions in mind, so you do not make inappropriate long-term financial decisions.
When I first started this blog, I wrote an entry about defining and achieving financial security. As I talk to more and more people about their experiences over the last 18 months during what the popular culture has called the “Great Recession,” I am witnessing some common themes of concern:
1. The stock market is up considerably since its low in March of 2009, but how do we know it won’t “crash” again tomorrow? We don’t know! It used to be common knowledge and belief that you knew you would have some ups and downs in your investments, but in the long run you would achieve profits by investing in market. From the conversations I have had with many people, it seems like there is this general sense they are waiting for the “next shoe to drop.” It reminds me of the weeks and months after 9-11 where I was glued to the cable news networks waiting to hear about the next terrorist attack. I sense an underlying fear in most individuals and business owners. They are waiting to see how everything works itself out. The danger of this view is that you become a market timer and try to “guess” what your latest stock holdings and the economy as a whole will do. The danger is you get so consumed with things you can’t do anything about and fail to make a difference in your life and the lives of those you care about the most.
2. What will higher taxes do to my future plans? I have been hearing this one especially since the passing of the health reform bill. There is a general confusion of what is and what is not in the legislation and I think people are skeptical of what may happen to their individual tax situation in the future. For the clients I work with, I tell them there is one thing for sure: their taxes will go up! How much their taxes will go up we do not know yet. I tell them it is important we continue to plan and make the best tax and financial planning decisions we can at the time with the information available to us.
3. How do I know I have reached financial security? I hear this quite often. An individual may also say, “how do I know I will not run out of money?” These are important questions to address no matter what the economy and the stock market are doing. Where many people fail in their quest to achieve financial security is they fail to define what financial security is for themselves and instead they allow the “talking-heads” on TV or the magazine covers to define it for them. Until you define what is most important to you and lay out a plan to achieve it, you will never reach financial security.
So these are some of the concerns people have right now is these difficult times, however, with all the chaos it is important to remember you are in control of your situation more then you believe. You need to control the things you can, such as how much you save, how much you spend and what you invest in and let everything else take care of itself.