Inspire FP Blog

How to Stay Inspired

Millenial couple running to stay inspired.

By Jeff Headrick, Financial Planner

July, 2019

How to Stay Inspired

Do you ever wish you knew how to stay inspired? At Inspire Financial Planning, we’re concerned about keeping you inspired for investing. But we are also concerned about keeping you inspired for life.

Every morning I get up at 4 a.m. I do some light reading, make myself a delicious organic breakfast, and then work out for an hour. I also spend some time journaling before I wake-up my wife to serve her breakfast in bed.

Actually, none of this is true. Over the course of the year my wake-up time varies between 5:30 a.m. and 6:45 a.m. depending on my mood, my fatigue, and whatever other force I am allowing to make me break from a near perfect morning routine. What’s the problem? I can’t stay inspired—which begs the question: “How do we stay inspired?”

I have known people over the course of my life who have no problem staying inspired. Some were in the Marines, some were phenomenally successful business professionals, and some were from the greatest generation. We’ve all come across them at different times in our lives.

One of these inspired individuals, we’ll call him “Randy,” is one of the most inspired individuals I have ever known. He has a great marriage of nearly twenty years, three beautiful kids, tons of friends, and makes it to church nearly every Sunday. Oh, and I forgot to mention he’s a very successful businessman.

I ask him once, “How do you stay inspired?” I can’t remember his answer exactly, but the jest of it was: he didn’t really know. He just was. While I am a believer in Christ, I do feel that God has wired us all differently. Call it DNA or whatever, some people struggle with daily motivation and inspiration, and some people do not. If you're one of those who do not, you can quit reading about here. For the rest of you, please read on and we can grow together as we explore how to stay inspired.

Most Inspiring Sermon

One day I was in church with Randy. We were both there with our families enjoying another Sunday. The title of the sermon was : “Feed the Good Dog”

The pastor had a belief that we all have two voices speaking to us at all times. One, was good. The other, not so good. It’s almost as if the devil is on one shoulder and an angel on the other. Both are speaking to us trying to influence our decisions.

But which one do we listen to?

If you want to stay inspired, you listen to the good dog most of the time. I think that most anyone would agree with that. While you may miss out on some short term excitement listening to the good dog, it’s probably the best route to go over the long haul.

But just knowing that we all have these inner voices influencing us is huge. You have to train yourself to listen to the voice that you should listen to—not the necessarily the voice that’s yelling the loudest.

1. How Do You Stay Inspired? Feed the Good Dog

Feeding the good dog is how to stay inspired. Picture of dog running on beach.

The good dog has to be fed. That good dog will bark better, longer, and louder if he’s got fuel to run on. Likewise, the bad dog needs to be starved. For example, if the company you keep is continually influencing you in a negative way, you may need to cull that relationship.

The good dog needs audio real estate, and the bad dog has to be starved to let the good dog be heard.

The good dog, like you, needs motivation. So, if you have ever wondered how to stay inspired, read on for some specific tactics.

2. Remember Who You Are

Most people who are over the age of 20 or so, have already earned a bit of grit. For example, by the time I was 20, I had lost a beloved aunt to an aneurism, and my father had decided this world was too much for him and took his life. While these circumstances, and others, had caused me a certain amount of pain and grief, they also instilled a “salt” , if you will, of someone perhaps a few years older. I’m sure you have life experiences that you survived to get your grit, too. Just remember that.

Never let anyone talk down to you because you are younger, less experienced, or whatever. Just lean back on who you are—by remembering who you are. You are tough enough for just about any moment—you may just not know it yet.

3. Fear Not

I’m not sure how many times “fear not” is mentioned in the Bible. However, it’s a whole heck of a lot. What I particularly like about the phrase "fear not" in the Bible, is that it’s not usually provided as an option. It’s usually more of a command. As followers of Christ we are called specifically to have no fear. I think it was in the 90s that the “no fear” slogan was brought about in sports campaigns. But it originated thousands of years ago.

4. How to Stay Inspired: Be Strong and Courageous

I’m not sure how many times the words “be strong and courageous” are in the Bible. But it’s a lot, too. Recently I have been reading some very old books like Deuteronomy and Joshua. It motivated and inspired me to hear these words so many times. Obviously, God knows that we need encouragement. In most of the verses that I was reading it is God who tells Moses to be strong and courageous. God is trying to inspire him.

I’ve read a lot of leadership books over the years. I’ve heard a lot of stories. But off the top of my head I can’t think of one single leader in the history of the world-- other than Jesus-- who had a more audacious task than Moses. But I do believe, like most of us, that Moses had his weaknesses as well. He had a good dog and a bad dog.  He just chose to listen to the good dog more often than not, and I believe that served him well.

5. Pass it On

Joshua had about 40 years of tutelage under Moses. When Moses’ leadership days were coming to an end, he simply handed the mantle down to Joshua and said these words: be strong and courageous.

Not only can being strong and courageous bless you, but whether you are a stay-at-home mom or the CEO of a Fortune 100 company, passing these positive skills and words of encouragement on down the line should be a goal of every leader. So always remember once you get on a roll—you need to pass on that courageousness.

6. Build a Monument

God also seems to be a fan of feeding the good dog. Several times throughout the books of Deuteronomy and Joshua we find God requiring the Israelites to build monuments along the way. It’s almost as if he knows that these folks are going to need all the encouragement they can get. He wanted them to create these monuments as a testimony to Him, and as a visual representation of a certain event or moment in time.

We Have a Tendency to Forget

Zig Ziglar said it best. Motivation is like bathing. You need to get it every day or eventually you are going to start to stink. No matter how amped up, keyed up, read up, pumped up, or prayed up you become, it too shall pass. And if you’re like most of us, it will pass very quickly.

As human beings we have a tendency to forget. How do we get around this? We build a monument. Maybe we do this by filling up a new journal. Maybe we go out and buy a new T-shirt that inspires us. Maybe we write a song or poem to remind us about some of the good and wonderful things of this life.

Whatever you do, just remember that if you do not build some sort of monument, the likelihood that you will forget some of the best things in life is almost certain.

7. How to Stay Inspired: Drink Deeply from Great Books

Reading is a great way to stay inspired. Photograph of multiple colored books.

John Wooden was one of the greatest coaches who ever lived. His achievements at UCLA from the 60s and 70s are unrivaled to this day. When studying his life many years ago, I read that he was an ardent reader. I believe one of his top two or three keys to success was to drink deeply from great books.

The truth is there has never been a period in history when we had as many motivational books as we do now. And I’m not just talking about self-help books. You may choose a book on your favorite sports hero like Tiger Woods, Serena Williams, or Michael Phelps. Or you may find a classic Western full of stories of determination, hardship, and overcoming adversity. Whatever your flavor, just grab a hot cup of coffee or chai or whatever floats your boat, and read...

The good dog is very literate. And unless you want the bad dog to win more battles than not, I highly recommend drinking deeply and regularly from the best books you can get your hands on.

Here are a few authors that I can personally recommend: Oswald Chambers, Alexander Dumas, Jimmy Buffett, David Jeremiah, Joyce Meyer, and Tony Dungee.

8. Circulation

In researching this blog post I came upon this motivational video from Robin Sharma that points to something he calls circulation. Circulation is simply getting out into the world and being a part of it. Yes, you can still circulate with your regular golf buddies that you meet with on the weekend. However, Robin emphasizes the fact that we need to circulate with people that are different from us as well. We need to circulate in different circles, we need to be out and about to stay fresh and to stay invigorated.

9. Self-Development

Another thing that you can do to stay inspired is self-development. By that I mean, never stop growing. Going back to the story of Moses mentioned earlier, when God decided to take him home at well over the age of 100 Moses was not only still strong but also had perfect eyesight.

No Moses was not the exception. After Moses died Caleb entered the promise land at age 85 stronger than ever. This guy was still warrior. I mention both these old guys for one reason. To let you know that age should not be a barrier to self-development. If there are people in their 60s and 70s who complete in the Iron Man every year in Hawaii, you can go back to school, or learn a new skill whatever age you are.

Nobody’s asking you to do a 1.5 mile ocean swim, a 100+ mile bike ride, and a 26 mile marathon (although, you could probably do this too if you set your mind to it). Just consider developing a mindset of growth and self-development. The better you are, the better you will be for those around you.

10. Physical Fitness

If I had to put a priority on the importance of physical fitness in regard to staying inspired, it would be in the top three. Scientific research shows that without a certain amount of daily physical activity, the mind cannot and will not perform optimally. I have been amazed over the years at how even a leisurely stroll around the office for fifteen or twenty minutes can rejuvenate both mind and body.

Ever heard of Laird Hamilton? Laird is one of the greatest big wave surfers of all time. He takes his fitness very seriously. I read in one of his books how even on his “off” days he goes to the beach to play with his kids or does some other sort of light physical activity in the yard. Physical fitness should be incorporated into everyone’s daily rituals and thank goodness it doesn’t always have to be performed at the gym.

There's No Place Like Wrightsville

My favorite thing to do is to go to the South End of Wrightsville beach—and walk. No extreme surfing, no hot yoga, just good old-fashioned walking. Sometimes I’ll take a couple of 5lb weights. Sometimes I’ll take a couple of 15 lb. weights. When I get bored of that sometimes I’ll carry an eight- pound medicine ball. My point is, this is very light activity, but it will get you out enjoying life, and has so many other ancillary benefits. Throw in your favorite music from Spotify or Pandora, and what could be more motivational than that? Don’t have a beach? Go to the woods. My point is, to stay inspired, get out and move.

11. Take a Road Trip

Road Trip Through the Mountains

Road trips are also a great motivator. Especially in the vast country that we live in.

I do not think I have ever been on a road trip of more than an hour, when I did not have at least five or ten minutes of absolute peace. If your road trips don’t do the same for you, perhaps you need to listen to some music. Or, perhaps you could get yourself a great audiobook on a topic you enjoy. Another one of my favorite quotes is:

“You are who you are because of what has went into your mind.” How do you stay inspired? Feed the good dog.

12. Watch a Movie

Movies are an art form. Think about it for a second. If the average movie costs $100 to $150 million to make, it ought to be pretty inspiring. I’m probably showing my age here, but I’ll give you an example of movies that have inspired, and still do inspire me. Cinderella Man, Gladiator, Braveheart, Rocky (yes, the original), Dances with Wolves, In Good Company, Forest Gump, etc..

While movies are designed for entertainment, entertainment can inspire us in all sorts of wonderful ways. Don’t overlook the power of this wonderful media. It contains both writing, music, and visual art—and can be highly impactful for those looking for another way to stay inspired.

13. Cook Something!

Full disclosure on this one (in case my wife reads this): I like to cook-- sometimes. I just have to be “in the mood”. And I’ll admit it’s not often. However, many Saturday mornings I find that the freedom of the day inspires me to make an egg, or to fix breakfast for the family. I enjoy the smells of the food, and the smiles it brings my loved ones when I prepare a simple Saturday breakfast.

I also enjoy prepping food for cooking. There’ a certain harmony in life when you’re not in a rush, and your slicing a fresh onion or tomato for a meal you’re preparing.

So many people in this world were not born in a country with such bounty. I like to think that every time I slow down enough to prepare a meal (or help my wife prepare one), I am also giving thanks to my maker for His abundant blessings.

14. Sports

This method of how to stay inspired is not for the couch potato who can’t put down the remote. If your not an avid sports fan, this method of how to stay inspired is especially for you.

Sports have, even since pre-biblical times, unified people. It’s kind of like movies, in that it is entertainment. However, unlike the actors who though very skilled at their craft are pretending to do great things, athletes are the real deal. They have trained for this.

You don’t win a marathon if you do not get up every day and earn that elite physical conditioning. You can’t compete on the PGA tour if you do not embody hard work and discipline. You cannot win the World Cup if you don’t eat, sleep, and breathe soccer for years and years leading up to that pivotal moment.

It’s not the victories in sports that wow me. There’s a winner every Sunday. But the stories about the grind it took them to get there is what keeps me watching. The best of athletes have come through enormous hardships and trials to get where they are. In other words, they typically have had to earn it. Whether you're an athlete or just a fan-- sport can inspire us all. It has been that way for thousands of years.

Summary: How to Stay Inspired

As I mentioned at the onset of this blog, I have not even come close to where I want to be as far as staying inspired. However, I know it is an area that I need to continually improve. When I find myself grumbling about my job, sad or depressed that something didn’t go as I had planned, I try and pick up the bible, go to the beach, or perhaps just sit down and watch an Avenger movie with my ten-year-old son.

This is how I feed the good dog.

How do you do it?

I hope that this read has benefited you in some way. Feel free to look back to this page from time to time for inspiration. If you know of a friend who struggles in this area, feel free to forward this post to them.

Thanks for reading. God bless. And stay inspired!

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died.

This left his family at a tough financial crossroad. Jeff’s personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted him to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

 

Investment Advisory Services offered through AlphaStar Capital Management, LLC, a SEC Registered Investment Adviser.  SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability.  AlphaStar Capital Management, LLC and Inspire Financial Planning are independent entities.

Are Lifecycle Funds a Good Investment?

Three Investment Managerss discussing Lifecycle Funds

By Jeff Headrick, Financial Planner

June, 2019

 

Are lifecycle funds a good investment? How do they work? When should I use lifecycle funds in my portfolio? In this month’s post, I will share with you some thoughts that will shed some light on these seemingly simple, but all too often misunderstood investment strategies.

What are Lifecyle Funds?

Lifecycle funds, also known as target date funds, are designed to be an all in one portfolio for investors at various stages in their lives. They have cool numerical names like the 2025 fund, the 2030 fund, the 2040 fund, etc. From American Funds to Vanguard to Fidelity, I cannot think of many big-name investment shops that don’t carry a smorgasbord of these funds.

Conceptually, lifecycle funds are easy to grasp. They are marketed to investors with a glide path methodology that takes some of the constant thinking out of the equation. But are lifecycle funds a good investment? Read on to learn more.

Example

Hypothetically, let’s say that you are a pre-retiree age 57 in 2019. You plan on working until age 67 so that you can retire right about the same time that you start drawing full Social Security. Knowing you only have about 10 years to go, how would you allocate your life savings? Would you select eight or 10 different ETFs and mutual funds and design your own portfolio from scratch?

Or would you be attracted to a lifecycle fund with a set it and forget it feature that more or less manages itself?

How Are Lifecycle Funds Used?

I think that the original intention of lifecycle funds was to simplify and diversify America’s retirement savings. Generally speaking, most individuals, even very intelligent individuals with a degree or two, tend to have a difficult time with the investment selection process. If you struggle in this area trust me when I tell you that you’re not alone.

Ideally, investors usually have several options with their 401(k). There are all sorts of laws and rules that usually apply, and most 401(k) providers can’t just offer you one or two or three investment choices. They typically have to offer several.

When prospective clients meet with us to review their 401(k), they typically have the following options available to choose from (or something very similar to it):

 

US Large-Cap Stock Fund

US Mid-Cap Stock Fund

US Small-Cap Stock Fund

US Bond Fund

International Stock Fund

Money Market Fund

 

With these six segments (funds) of the market you can typically build a very nice portfolio. However, you need more than a 30-minute meeting with HR and a 20-page investment guide to figure out how to go about it.

More often than not, I meet with people on a regularly basis that are managing substantial portfolios on their own, with very minimal guidance from their employers.

And please don’t think that I am harping on the employers. Sure, employers could do a better job when it comes to investor education. But as educated investors, we’ve all got a be continually sharpening our saw in this area. Our financial livelihood depends on it.

Let’s get back to the drawing board. Many years ago 401(k) designers and employers realized that having everyone design their own portfolio was too tall of an order for some. So, they began designing lifecycle funds that were built to run like clockwork within certain parameters.

Vanguard Target Retirement 2030 Fund (Lifecycle Fund)

Graph shows Vanguard Asset Allocation Model

Source: Vanguard

For instance, if someone in 2019 chooses a 2025 fund, it is thought that they will be retiring in about six years (time is the parameter). Or, if someone has about 11 years until retirement, he or she might select the 2030 fund. In theory it makes sense, and that’s why employers and regulators love it. However, reality is different than theory, and sometimes these funds work well— but all too often they don’t.

When Should You Use Them?

These days I see 401(k) providers that still offer the same six asset classes shown above. However, more and more, I am seeing a splash of several lifecycle funds (also known as target date funds) added to the investment options available to employees. I believe the intention is to either:

  1. Construct a portfolio using the traditional asset classes like US large-cap, US mid-cap, US small-cap, international stock, US bond, and money market.
  2. Skip doing your own portfolio construction and simply choose one of the lifecycle funds.

Again, in concept I think this is fantastic. But here is where I have a problem. All too often, I see clients that are using both strategies. They are selecting some of the more specified holdings based on whatever criteria they like, and then adding one or more of the lifecycle funds in conjunction. This is where I get a little unsettled.

While there may be some radical rationale that I’m not aware of for blending the two strategies, I’m pretty sure that in general this is a bad idea. You get an overlap of bond holdings when you do this, as well as an overlap of stock holdings. You also confuse the understanding of your bond to equity ratio because you’ve combined (mixed) the two strategies. In doing so, a lot of the simple math becomes, well, not so simple. Why not just choose one or the other? If you can rationally explain this, maybe your OK. But if not, maybe it’s time to reallocate.

Are Lifecyle Funds a Good Investment?

I think lifecycle funds (also known as target date funds) can be a great investment. However, I believe they work best for people who have a limited understanding investments, and are ready to fully commit their allocations to such a strategy. Commit means that you don’t water down your investment path with other investments. You keep it simple and straightforward.

Still Confused?

I will admit that this is a tricky topic. I highly encourage just about everybody these days to find a financial advisor or a financial planner that you can trust, and to work with them on an ongoing basis to make sure your retirement plan is running like a new Toyota. (If you have never worked with a financial planner, please read our Beginner’s Guide to help you in the process.)

Like that Toyota, every vehicle needs attention, every vehicle needs maintenance, and those who care for them the best-- tend to get the most mileage out of them.

If we can help you in anyway, please let us know.

We can be reached at (910)448-1450, or you can click here if you’d like to schedule an initial conversation.

Related:

Three Ways to Prepare for a Stock Market Crash

Mutual Funds Vs. ETFs: A Comparison

Your 401(k) and the Efficacy of Asset Allocation

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died.

This left his family at a tough financial crossroad. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.


Charts and graphs contained herein should not serve as the sole determining factor for making investment decisions. All hypothetical scenarios are for illustrative purposes only.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results.

You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Portfolio Stress Test: Seven Steps to Strengthen Your Investment Portfolio

Man Standing in Front of Blackboard Stress Test Equation

By Jeff Headrick, Financial Planner

May 14th, 2019

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Are you ready for a portfolio stress test? Do you need to have one? These are great questions. As with just about everything in the world of investments, this is yet another topic that can be incredibly complex or really simple. It just depends how far down the rabbit hole you want to go.

As for me and my firm, we do perform portfolio stress tests on client portfolios. I don’t always refer to them as stress tests, but that’s what they are. It’s not too difficult to look into the past to see what a certain mix of stocks and bonds did or would have done. Likewise, it’s not too difficult to run projections as to what a certain mix of stocks and bonds might do in the future. Keep in mind, whenever you run projections that’s just what they are: projections. They end up being more like educated assumptions, but it’s better than just running blindfolded into the desert. It gives you a plan.

Learn From the Past

The biggest argument I can give for running portfolio stress tests, is that they give you a clearer picture. So many people I have met over the years fall into what’s called the recency trap. They assume that since their retirement account has been going up for the last five or six years consecutively, that will continue to happen. As we learned in 2002 and 2008, that’s not always the case.

Step 1. Get Help

The first step toward stress testing your portfolio should be to get help. Without a professional’s guidance, I do not think that the average or even the experienced investor is up to this task. Not only are financial advisors and financial planners trained using stress testing software, but they practice it every day. And it’s that practice that makes them very good at what they do. So step one is to get help. If you don’t have a financial planner and will like to learn more about hiring one, you may want to read article I wrote on the topic: The Financial Planning Revolution: A Beginner’s Guide to Working With a Financial Planner

Step 2. Stress Testing: Know the Basics

You need to know the basics about stress testing. I looked up the definition on Investopedia, and even they had a hard time defining it. But I did pull this from the definition:

Stress testing involves running computer simulations to identify hidden vulnerabilities in institutions and investment portfolios to evaluate how well they might weather adverse events and market conditions.

 

-Investopedia

 

Articles like the one you’re reading are a good place to start. So you’re already ahead of the curve! You can also Google the term and perhaps watch some YouTube videos that demonstrate some software scenarios.

Step 3. Understand What the Software Can and Cannot Do

Riskalyze Video Disclaimer

Source: Riskalyze

Please take a moment and watch the video above. Both of these gentlemen do a good job of describing what their software program does. I have utilized this software for a while now, and have found it very useful. This particular program, called Riskalyze, does a really respectable job of analyzing the risk in a portfolio, as well as providing stress testing capabilities. It does this by using historical return and volatility metrics to come up with ratings on almost a quarter of a million securities.

While this software does a wonderful job determining strengths and weaknesses regarding risk in a portfolio, it does not do detailed projections based on withdrawals in the future. At least not to an extent that I am overly impressed with. But the software itself is amazing. I use it to assess both tolerance for risk and how a certain mix of stocks and bonds might perform under a myriad of conditions.

But like all software, there is no panacea of solutions. You need to know what the software you are utilizing can and cannot do. Or, you need to make sure that your financial professional does, and can shed some light on that for you.

Step 4. Complete Your Inventory

Once you have a general idea about stress testing and how some of the software might work, it’s time to take your inventory. Most financial professionals will ask that you provide them recent statements of your current investment accounts. This would include your IRAs, your 401(k)s, and any other investment that you would like evaluated.

Having this information will provide your financial planner with the specific pieces of your current investment puzzle. Once he or she has this information, they will then enter all of your individual securities into the software to begin the process. This way your stress tests are uniquely designed to show strengths and weaknesses in your current portfolio investment structure.

Step 5. Look Back

New York Skyline/Empire State Building

Empire State Building: Photo by Emiliano Bar

I like to look back before I look forward. This gives me perspective. Once I have entered an individual’s specific securities into a particular software, the software will run multiple scenarios. It will show the client how a similar portfolio would have performed in the past, based on things that we know actually happened.

See the graphs below to understand how a certain mix* of securities may have performed during Financial Crisis of 2008 on a $750,000 401(k).

Mutual Fund Portfolio Allocation

I am utilizing these particular funds for two reasons. One, they are used widely and well known. Two, I see a lot of pre-retirees that have a pronounced allocation to equities, with a splash of Lifecyle-Funds thrown in. Not a perfect recipe for great asset allocation, but it may look familiar to something you’ve seen before.

High Portfolio Risk Score

As you can see, based on the data we have today we can tell that if a similar crisis arose, the Vanguard, American Funds, Fidelity portfolio might experience similar losses.

But we can’t be too bearish. Once we have gained our perspective, we need to utilize our bullish vision and see how well a given portfolio may have performed during a period of prosperity as in the 2013 bull market.

Portfolio with a Positive Impact

Step 6. Perform Projections: Look Forward

Forward testing is where a financial advisor can add even more value. Usually, pre-retirement you are in what’s known as the accumulation phase of retirement planning. You are not only waiting on retirement, but you are adding money to your accounts regularly. This is fairly easy to do. But in retirement, you will not only cease adding money to your accounts on a regular basis, but you will begin taking money from them.

This is known as the distribution phase of retirement.

Below are three examples that display the withdrawal phase under three different scenarios. This is there hypothetical scenario:

John and Mary Smith are 59 years of age and wish to retire in six years at the age of 65. They have already run projections on both of their Social Security accounts which they will turn on at age 66. The total income per year from both Social Security accounts is $60,000. John has a pension that begins at age 65 that should be about $50,000 per year.

In addition to their pension and Social Security accounts, they have about $750,000 in a 401(k). The 401(k) is currently invested in the same mix of securities shown in the previous example (45% Vanguard US Growth ETF, 45% Growth Fund of America, and 10% Fidelity Freedom 2020).

They have requested to see multiple portfolio stress test scenarios showing how they're portfolio might perform from now until age 100. Keep in mind, for simplicity sake, they will not be making any more contributions, and their suggested withdrawal rate is 4.5% at retirement which we will adjust for inflation every year at 2.5%. In today’s dollars, 4.5% of $750,000 would be roughly $33,750 per year of income.

Investment Stress Test Average Market CycleStress Test 1. Average Sequence of Returns

 

Investment Stress Test Negative Sequence of ReturnsStress Test 2. Negative Sequence of Returns

 

Investmemt Stress Tests Positive Sequence of ReturnsStress Test 3. Positive Sequence of Returns***

*** RetireUp provides several methods for modeling future returns and stress testing a plan. Each method creates a 100-year sequence of hypothetical returns which are applied to the plan. How Specific Sequences are Determined: Positive, Average and Negative. A typical plan will run 30-40 years, so only a subset of these 100 years will be used. For each plan, the software runs 100 year-by-year permutations of the simulated returns and determines which subsets of the entire sequence would generate the most optimal (Positive Sequence), least optimal (Negative Sequence) and median (Average Sequence) results for an individual plan.

Portfolio Stress Test Results

As you can see, and as Forest Gump would attest, “Life is like a box of chocolates. You never what you are going to get.” In example one during an average period of market volatility, the client’s savings does well.

However, in example two during a time of higher volatility, this same mix of assets could zero out. This may not be probable, but from a historical perspective it is possible.

Finally, example three shows that during a period of minimal volatility and positive growth, this same mix of investments may have even left a sizeable gift to the children, grandkids, and favorite charity.

Solutions 

If you are wondering what to do to smooth out some of this volatility, the answer is: ask your financial planner. They will be able to walk you through some steps to insulate you from those negative scenarios, while still striving to earn a competitive return.

Step 7. Build a Better Portfolio

I hope this gives you a better perspective as to the value of stress testing. Going into retirement without stress testing your portfolio under a myriad of conditions would be imprudent. Look at it like this. If you have a wife and a daughter like I do, what kind of test would you do on their car if it they said they were going to drive an hour away? Probably not much. But if they told you that they had decided to drive from Wilmington, North Carolina to San Diego, California, you would probably take the car into the local garage to get your top mechanic to go through the car bumper-to-bumper looking for potential problems.

Shouldn’t the same level of testing be done with your life savings?

It’s all about building a better portfolio. Stress testing is very helpful during the accumulation stages as mentioned above. But in the distribution stages of retirement it is even more critical. Armed with results of these tests, you can begin to construct a portfolio that may perform far better than it would have otherwise.

As always, good luck in your retirement planning and please do not hesitate to call us if we can be of assistance. (910)448-1450

Sources:

Investopedia, Riskalyze, RetireUp Pro, Yahoo Finance, Vanguard, American Funds, Fidelity, Bob Drury CFP/CFA, Encyclopedia Britannica.

Related: 

Your 401(k) and the Efficacy of Asset Allocation

Three Ways to Prepare for a Stock Market Crash

Disagreeing with Warren Buffet: An Argument for Bonds

The Holy Grail of Financial Planning: The Annual Review

 

If we can help you in anyway, please let us know. We can be reached at (910)448-1450, or you can click here if you’d like to schedule an initial conversation.

Charts and graphs contained herein should not serve as the sole determining factor for making investment decisions. All hypothetical scenarios are for illustrative purposes only.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. 

Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results.

You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Dave Ramsey and Millennial Magic: Six Characteristics That May Make Millennials Rich

mansion

By Jeff Headrick, Financial Planner

April, 2019

Millennials Really Do Have Their Act Together

Having met with hundreds of families and having had thousands of conversations with people about money, I have learned some things.

I have learned to listen. I have learned to read an individual’s body language and look into their eyes for something they may not be able to convey verbally. It’s what financial advisors do for a living. We listen, we have discussions, we educate, we motivate and then we activate. There’s an art and a science to helping people financially, and I’m not saying that I have mastered it yet. But I’d like to think that I’ve learned a few things over the years.

That being said, I have come to the conclusion that Millennials are going to be the best financial stewards since the Greatest Generation.

Dave Ramsey SmartVestor Pro

A couple years ago I became affiliated with Dave Ramsey’s SmartVestor program. Similar to his ELP program, the SmartVestor program is designed to bring Dave Ramsey’s listeners in connection with licensed financial professionals who can serve their best interest. The financial professionals and Dave Ramsey’s listeners tend to have a lot in common. They believe in Dave Ramsey’s philosophies for the most part, follow Christ, and strive to be the best stewards that they can be.

Not long after my affiliation with Dave Ramsey, I was offered an invitation to visit his offices and meet with the man himself. I had listened to Dave and read his books for over 20 years, so as you can imagine I was pretty excited about the opportunity.

My Visit to Dave Ramsey’s Office

When I pulled up to Ramsey Solutions in Brentwood Tennessee, I was surprised about some things. As I pulled up in the parking lot, I noticed several young men in their mid-20s coming out of this large facility with croquet equipment. I did not know anyone still played croquet! But then again, what do I know about today’s Millennials?

As I proceeded to my parking space, I saw these young men setting up their game during their lunch break on a small patch of lawn connected to the parking lot. Cool, I thought. Good for them. And good for Dave to have a loose atmosphere where men can be men and boys can be boys. Sometimes that collision can be a good thing.

Must Be That Millennial Vibe

As I made my way from the car to the front entrance, I noticed some more young men and women going to lunch. One of them was getting out of the elevator and carrying a very long skateboard with him. I guess instead of walking around the block during a lunch break for cardio, this guy was going to get his cardio via skateboard. Again, pretty cool. As a creative spirit myself, I like to work very hard, but I like to be myself and relax as often as possible to maintain that creative spirit.

I share this with you because what surprised me most about Dave’s office was not the efficiency that it ran with (it ran with a lot). It was not the high-level of professionalism and integrity of the people that I met (they were impressive). It was not even the wonderful opportunity to meet the Moses of modern-day finance. What surprised me most about my visit was the laid-back cultural vibe, propagated at least in part, because Millennials know how to have fun and some companies out there like Dave Ramsey Solutions have learned that they are wise to let them have it (think Google). They’ll get plenty of work out of them when their break is over.

Millennial Financial Mindset Vs. The Greatest Generation, Boomers, and Gen X

Over the last many years, I have met with a wide range of people. There was a time from about 2000 to 2005 where the vast majority of my clients were the Greatest Generation. This generation grew up during the Great Depression, and I have found them for the most part to be extraordinary clients. If you grew up during the Great Depression your understanding of the value of money was deeper than anything that they could have taught you in school.

As my client base grew, I began to serve more and more Baby Boomers. Baby Boomers are fantastic clients as well, but they have a different psychological makeup than their parents. They are a little bit more well read, and a lot more open to new things.

The Dow rose 346% and the Nasdaq rose 847% during the 1990s.

Source: Yahoo Finance. Chart and graph for illustrative purposes only.

Stock Market of 1990s

I have also served a lot of Gen X clients over the years. While this is my generation, I have to be honest and say that compared to the two groups mentioned above Gen X are probably the least frugal. Having grown up during the wild 80s, followed up by the ten years of economic bliss in the 90s— a lot of Gen Xers believe ourselves to be bulletproof.

Time and circumstance will let us all know, sooner or later, that we’re not.

Of course, I have seen people from the Greatest Generation on occasion be the antithesis of their peers. Likewise, for Boomers and Gen Xers.

But we are all students. We are all learning. We are all growing.

 

6 Characteristics That

May Make Millennials Rich

 

1. Congeniality

2. Honesty

3. Passion

4. Well-Read

5. Unified

6. Humility

 

1. Congeniality

Over the years I’ve developed great relationships with prospects turned clients that were approachable and coachable. When individuals have a friendly spirit, they are usually easier to work with. And from a teaching perspective, they are the most coachable. Teaching an individual or a couple about asset allocation, risk management, mutual funds, cash flow management, tax laws regarding rollovers, etc.— requires a congenial and teachable spirit. These are not easy topics to educate people in. I have found that Millennials have a quicker start out of the gate when it comes to financial planning due to their friendly spirit-- from the moment they walk in the door.

2. Honesty

I have found most Millennials to be very honest. They don’t hem and haw about why it’s not really their fault that they are not reaching their goals. Maybe it’s because they’ve been listening to so much Dave Ramsey, but the Millennials I meet come to their initial consultation with an incredibly honest and open spirit. For a financial planner with a teacher’s heart, this is golden. How can a doctor, a financial planner, a pastor, or anyone else in our lives provide guidance if we are not being completely honest and open?

3. Passion

A great percentage of the Millennials I meet with are passionate about finance. More and more, I am hearing them request concerns for understanding the bigger picture, or holistic financial planning. This is a big pivot it from other demographics in that they can be primarily interested in the best mutual fund, or the lowest expense ratio on XYZ investment.

They want to be doing everything well. This includes cash flow management, debt management, estate planning, business planning, insurance planning, legacy planning and more. All of these topics just mentioned are not purely investment related. But they are central to your overall financial health. And I’m learning more and more that Millennials tend to buy into this holistic strategy lock, stock and barrel. Heck, they even motivate me with their passion! And that’s the symbiotic relationship that is beneficial in most any teaching environment.

And if one prevail against him, two shall withstand him; and a threestrand cord is not quickly broken. Ecc. 4:12

4. Well-Read

Having had a mailing address in Europe, the Caribbean, and many other wonderful places during my 20s, my daughter asked me once what was my favorite place in the world. I thought about it for a bit, and finally said: probably the library. Yes, I am weird. But I love books, peace and quiet, and a staff of intelligent people 30 steps away who can offer any assistance that I may need. All for free.

Today’s millennials love to read too. Some of them are reading Dave Ramsey’s books. Some of them are reading Chris Hogan, Rachel Cruze, or Robert Kiyosaki. But they are reading books on finance and gaining knowledge at a rapid pace.

5. Unified

Another wonderful quality that most Millennial couples have, is the quality of a unified spirit. I cannot express how difficult it is to explain new financial concepts and strategies to a couple that are at odds with one another financially. Most millennial couples that I meet not only think alike but act alike when it comes to money. I believe this might be one of the most unique differences between them and other demographics.

T.S. Eliot once said that to understand his poetry, you would have had to read every book he ever read in the order that he read it. I’ll let you ponder that for a moment. While we realize this is impossible to do, it sets the tone for understanding someone’s mindset. Millennial couples who study personal finance as a team, are generally very inspired and motivated to make positive change. The Bible tells us that the threestrand chord is not easily broken (Ecclesiastes 4:12). Having a unified spirit helps a Millennial marriage in more ways than one.

6. Humility

Some prospective clients I meet are incredibly humble, and others incredibly not. While an overconfident personality may help you in athletics or even in the operating room, it will not serve you well in personal finance. While most Millennials I meet are highly intelligent, they seem to have a depth of humility of people many years their senior.

They are not afraid of what they do not know, and they do not pretend to know something that they do not. I have met a lot of millionaires over the years that entered their early 60s with a lack of humility, who gained a tremendous amount of it in the remaining seven years leading up to retirement. Even as a licensed financial advisor with years of experience, I know that this is a complex playing field in a game where the rules change more frequently than NFL football. I believe that humble people learn lessons sooner, and the humble may build more wealth because of it.

Conclusion

Listed above are six characteristics that I believe are going to make Millennials rich. If you have some of these characteristics mentioned above, I encourage you to continue to hone that character trait and make it even more viable. If there were areas that you read about that didn’t sound like you, maybe that’s something you can work on.

I believe that Millennials are going to be the best financial stewards since the Greatest Generation. I pray they do not prove me wrong. I don’t have a lot of statistical evidence to back me up yet, but history will tell the tale.

 

Related

Four Principles of the Successful Investor

The Financial Planning Revolution: A Beginner's Guide to Working with a Financial Planner

Your 401(k) and the Efficacy of Asset Allocation

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This left his family at a tough financial crossroad. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal.

No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

             

Mutual Funds vs. ETFs: A Comparison

stock market graphics

By Jeff Headrick, Financial Planner

March, 2019

I often get calls from Dave Ramsey listeners looking for that perfect mutual fund. They want a fund with experienced management, lower expense ratios, and insanely high returns. And while these types of funds do exist, they are not always that easy to find.

I also get questions, though not as many, about ETFs. ETFs, or exchange traded funds, are the younger brother to mutual funds. According to bankrate.com, mutual funds currently manage 6.7 trillion of assets, while ETFs only have about 1.7 trillion. But the trend is shifting every year, mainly due, I believe, to lower expense ratios.

If you want to know exactly how the two are structured here is a good article recently published that explains the nuances between the two from a technical perspective.

ETFs and Mutual Funds: More Similar Than Different

From a big picture perspective, they are more similar than different. They both contain large “baskets” of stocks. Not just one or two. Many mutual funds and ETFs contain several hundred stocks and bonds. So, with the same energy it takes to buy $10,000 worth of Apple stock, you can buy Apple, Microsoft, and many other great companies with the same number of key strokes.

American Funds Growth Fund of America

American Funds Growth Fund of America meets many of the criteria sought after by Dave Ramsey fans and other investing enthusiasts. The management tenure varies, but it looks like the youngest manager of this fund has 18 years of experience and the oldest manager has 32 years of experience. American Funds is one of a few companies that uses a multi-manager approach, and historically it has served them very well.

This fund also has a low expense ratio compared to its peers. For Class A shares the current fund expense ratio is 0.64%. Compare this to the industry average of 1.15% (Lipper Large-Cap Growth Funds average) and you can see how little things like expenses can make a big difference over time.

Finally, this fund has averaged a net return of 11.71% over the last 10 years. If we go back to the fund’s inception in 1954*, we can see a net return of 13.53% (Class F-2 shares).

mutual fund and etf performance

Vanguard Large Cap ETF

The Vanguard Large Cap ETF does not meet standard management criteria of 10 years or more per manager. The reason for this is that the Vanguard Large Cap ETF is not an actively managed fund. It is a passive fund, that attempts to mirror the return of the market. For this reason, it does not need a dozen highly compensated people on the payroll, therefore reducing its expenses significantly.

The expense ratio of this fund is 0.05%. The American Funds portfolio had an expense ratio of 0.64%. So, in terms of expense ratio, the American Funds portfolio is over 12 times higher than that of its Vanguard peer in terms of expenses.

According to recent data from Vanguard which I will share below, the Vanguard Growth ETF has averaged a net return of 14.53% over the last 10 years. If we go back to the fund’s inception in 2004**, we can see a net return of 8.07%.

Two Great Investment Options

I have used a combination of mutual funds and ETF’s over the years. Both are excellent investments for the long-term investor. You may find it of interest that even the top five holdings in the funds are identical. They both hold Apple, Amazon, Alphabet, Microsoft, and Facebook.

But to understand which investments are right for you, and how you should best go about constructing your own portfolio, I would highly recommend you seek a licensed and qualified financial professional. Even Dave Ramsey does not choose all of his investments on his own. Rather, he relies on a financial advisor to help him with the process. Here is a good video where Dave shares his take on How to Find a Reliable Financial Advisor.

I hope you enjoyed this article, and that it brings some inspiration to your investment thought process. Thanks for reading.

Related:

Four Principles of the Successful Investor

Your 401(k) and the Efficacy of Asset Allocation

 

Resources:

American Funds Growth Fund of America

American Funds Global Growth Model Portfolio

Vanguard Growth ETF

https://www.bankrate.com/investing/mutual-fund-vs-etf-which-is-better/

 

We can be reached at (910)448-1450, or you can click here if you’d like to schedule an initial conversation.

 

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results.

You cannot invest directly in an index. Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

 

 

 

 

Stock Market Deja Vu

By Jeff Headrick, Financial Planner

January, 2019

 

Do you remember where you were when the Twin Towers fell? Just about everybody in the world can tell you precisely what they were doing at the time this catastrophic event happened.

If I ask you what you were doing in the fall of 2008 when the Great Recession began your memory may not be so succinct. But if you were a financial advisor at this time your memories of this crisis are probably as vivid as if they happened just yesterday. I know mine are.

When you manage other people’s money for a living, events like this become palpable. I can’t speak for all of the other advisors in the country, but I can tell you unequivocally that I bare a few scars from 2008.

Like any event in history, we can learn from these great moments. There’s no teacher like experience. Which leads me to today’s post. Am I the only one that feels that the current economic climate is somewhat reminiscent of 2008?

Stock Market 2019

Already in 2019, we are hearing a deluge of positive and negative talk speak coming from the television. Some experts say that there will be rocky waters in 2019. A lot of the economic research that I have studied shows that some economists think that there is a possibility of an economic downturn later this year, which looks even more possible in 2020. Nobody knows.

But my instincts tell me that 2019 could be similar to 2008 in many ways.

Stock Market 2018

While we really have no idea exactly what the market will do in 2019, the results are in for 2018. And the results show that the S&P 500 was down about -7%. This -7% is not a weekly or even a monthly downturn. This is a measurement of performance over an entire year of time.

By now you should have received your quarterly statement for your 401(k), 403B, IRA, etc. This might be a good time to pull up that most recent statement and see how you did. If your portfolio was down -7 to -9%, then this was about par if you had some international equity exposure.

I often hear from prospective clients that their portfolio is not doing good. After all that’s why they come to see me! But I like to be challenged and I like to challenge others, so I often ask: Compared to what?

Because the truth is, if your portfolio was down about -7% and you are 100% invested in US stocks, this was a pretty good year for you. Most studies show that it’s nearly impossible to beat the market. What you can do is diversify into multiple equity asset classes as well as bonds, and by doing so buffer your portfolio to some extent from precipitous losses.

Stock Market 2008

Flash back to 2008. When the Financial Crisis of 2008 became glaringly obvious it was in the fall of that year. At that time, it became clear that not only had the real estate market collapsed, but that the stock market was collapsing as well.

Only the most conservative portfolios were able to whether such a storm. If you had made adjustments in 2007 or early in 2008 to a more conservative posture, you were well rewarded. If you didn’t your returns were probably—well— average. And by average your portfolio may have been down -30% or -40%.

S&P Performance

Graph shows S&P 500 index in blue, the DOW Jones index in red. Source: Yahoo Finance

At the time, I believe most of us felt like the market crash was starting. But what we have  learned over time is that the slow unwinding in 2007 that had barely gathered much attention on Wall Street, was actually the beginning of the whole process.

2007

While history will show 2008 to be the worst year of this crisis, it will also show that this negative downturn started twelve months before, in the fall of 2007. If you look at the graph above it’s very clear that the market had started unwinding in 2007, not 2008.

Why is this relevant? It is relevant—or at least might be—because the -7% stock market turn in 2018 could be a harbinger of things to come. Just look over your shoulder at the last 12 months and determine for yourself what the state of things are at the present. Don’t be dissuaded by the short-term opinions of others who are selling air-time for a living. Think your own thoughts. Do your own research, or hire someone you trust to do it for you.

Stock Market Related

Bear Market on the Horizon

Three Ways to Prepare for a Stock Market Crash

Your 401(k) and the Efficacy of Asset Allocation

 

Thanks for reading and if you enjoyed this post let us know it. You can always reach us in North Carolina at (910)448-1450, or in Tennessee at (865)604-2846. Whether you are an investment professional, or a layperson with a passion for building a quality portfolio, please don’t keep your thoughts to yourself. We can all learn from one another.

 

About the Author

Jeff Headrick is an independent financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal.

No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Four Principles of the Successful Investor

man studying stock market

By Jeff Headrick, Financial Planner

January, 2019

 

In this week’s blog I’m going to discuss four principles of the successful investor. They are as follows:

 

#1. The Principle of Learning

#2. The Principle of Pleasure

#3. The Principle of Decision

#4. The Principle of Help

 

The Principal of Learning

I have been an investment professional for many years now. While I was unfortunate to be in the financial planning business when the Twin Towers fell in 2001 and when the Great Recession began in 2008--in some ways I was fortunate. You see, as a man of faith I can attest that God often takes burdensome short-term events, and uses them as a form of seed for future growth. It’s in the winter that the roots grow the deepest.

I typically brainstorm for about a week before I begin a new post. There are so many things to write about and I try hard to be relevant. My original idea for this week’s post was to write about the importance of a long-term investment philosophy. I also wanted to write about how peace can be added to your life with such a view. This is especially the case if you are on the precipice of retirement, and the market is throwing a tantrum as it has in recent weeks.

As I began charting the ideas for this post, I wanted to include a graph or two to add some validity to my thoughts. In about 15 minutes I entered some ticker symbols that I use in my client’s portfolios, compared them to a benchmark index (the S&P 500), and then charted them over three different periods of time.

Short-Term View of the Stock Market

Dec 2018 Market Trend

This is a short term (1 month) view of the S&P 500 index, Vanguard growth ETF-- VUG, and a Vanguard short-term bond ETF-- BSV.

Mid to Long-Term View of the Stock Market

Five Year View of the Stock Market

This is a mid to long-term (5 year) view of the S&P 500 index, Vanguard growth ETF-- VUG, and a Vanguard short-term bond ETF-- BSV.

You see, after a lot of study and learning, I now know how to find calm in a raging sea. I find calm by slowing down, performing analysis, and studying what I have found. But as I was doing this charting, one thought kept popping through my head: “What if everybody knew how to do this?”

And that’s when it hit me. While some people seek out advice from professionals who can do this for them, many people do not. And whether you use a financial professional or not, shouldn’t just about anybody in this day and age be able to turn on her computer and spend 15 minutes entering her own investments in order to compare them to a relevant benchmark?

But what I take for granted is that most people do not know how to do this. And even if they did, they may not be able to fully grasp what it means— and therefore get the piece and confidence that should be derived from such an exercise. So instead of simply writing about a long-term investment philosophy, I decided to write about four principles a successful investor might consider in order to develop that long-term view.

The first principle for the successful investor is the principle of learning. If you want to be successful investing, you’re going to have to do some homework. And in the nature of full disclosure, you should probably do a lot of it. Just like any other field of study, the landscape is constantly changing, and a true student changes the way he learns to coexist.

If you want to be a successful investor start by clearing out your mind from what you think you know, and just begin as a new as a student of the market, the economy, and asset allocation.

The Principle of Pleasure

The next principle is the principle of pleasure. I have seen few people who were truly great at what they do, that did not enjoy what they were doing. Whether you’re a professional football player, a schoolteacher, or a bricklayer, if you are really good at what you are doing, you probably enjoy doing it.

Investing is no different. If you are going to make your own investment decisions, they should be well-informed. In my experience, most savvy nonprofessionals I have met through the years truly enjoy studying the stock market and investments. Maybe it’s just a hobby, maybe they realize how important stewardship is, or maybe it’s both. But most successful investors take pleasure in both the learning and the doing of investing.

It’s worthy of note here that in order to work with an investment professional such as a financial planner or a financial advisor, you don’t necessarily have to put in as much study as someone who does not work with a professional. In addition, I have worked with many faithful delegators over the years that absolutely disdain investing. And that’s perfectly okay, so long as you are working with a professional who does derive pleasure from pursuing that perfect portfolio.

Are we in agreement so far?

The Principle of Decision

The third principle is the principle of decision. There are so many investment philosophies out there to choose from. Do you like value stocks or growth stocks? Are you a passive investor or an active investor? Do you believe in a well-diversified portfolio or do you simply load up with aggressive equities positions and roll the dice?

Any of the styles above may work for you at a given point in time. But that’s not the question. The question is, which one are you going to subscribe to? Which one of these investment styles are you going to form convictions upon, and then make a reality?

I know for me the principle of decision came around 2005 and 2006 when I had grown weary of reading books by William Bernstein and Richard Ferri. I had attended Certified Financial Planner investment courses at the University of Tennessee at around the same time. In addition, I had been utilizing multiple software systems that advocated their own investment style. My point here is that either my brain was going to explode via information overload, or I was going to have to take a deep breath and make a decision about the style of investing I was to go forward with at that point in time.

What I was going through is also known as analysis paralysis. We can read so much and study so hard, but in the end, we have to make a decision.

After you have done your homework and studied the science and art of investing, you have to make a decision as to how you are going to implement what you have learned. And even if you do a lot of homework and enjoy the process, you may still find that pulling the trigger on your own portfolio design and construction can be a little overwhelming.

If you make it through the principle of learning and the principle of pleasure but find yourself getting stuck on the principle of decision--not to worry. This may be an opportunity for you to seek guidance from an investment professional such as a financial planner or financial advisor. Together, you and your advisor may very well be able to come up with a grand plan to optimally manage your investment portfolio.

 I find calm by slowing down, performing analysis, and studying what I have found. But as I was doing this charting, one thought kept popping through my head: “What if everybody knew how to do this?” 

The Principle of Help

This final principle can be tricky for some. While I do meet a layperson now and again that has had success with a do-it-yourself approach to investing, most of the time this success has not been during an elongated bear market. And if it was, most of these people were in the accumulation phase of planning.

Managing a portfolio during the accumulation phase can be deceiving because during this phase you are pumping new money into the account on a regular basis. For example, you may have a portfolio that’s worth $250,000, and it doesn’t seem like it’s affected much by a drop in the stock market. However, what you may have failed to factor into the equation is the fact that you may be contributing anywhere from $10,000-$20,000 or more annually into this account.

New money inflows like this can smooth out stock market corrections quite nicely. But when you are in full-blown retirement you will not have the luxury of this positive effect. Make sense?

Whether you have had success as a layperson or not, always be open to the principle of help. Even as an investment professional, I rely heavily on constant input from my peers to maintain a purity and humility with my investing.

During the bear market of 2008, for example, I probably spent as much time talking to my peers about what to do as I did to my clients. And I let my clients know it. I let them know that I did not have all the answers, but that I was seeking out advice and second opinions from those who had seen markets like this before. It’s amazing the piece that asking for help can truly bring.

If you mastered the principle of learning, pleasure, and decision, don’t ruin this success by letting your ego get the best of you. Always be humble enough to ask for help.

Summary

To be a successful investor, it will probably take more than just the four principles mentioned here in this post. However, based on my experience I can’t think of a better place to start than these four. If you are interested, I would be more than willing to hear your thoughts on the subject. You can always reach me in North Carolina at (910)448-1450, or in Tennessee at (865)604-2846. Whether you are an investment professional like me, or a layperson with a passion for building a quality portfolio, please don’t keep your thoughts to yourself. We can all learn from one another.

About the Author

Jeff Headrick is an independent FEE-ONLY financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal.

No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

Four Reasons to Love Your Financial Advisor

christmas village

By: Jeff Headrick, Financial Planner

December, 2018

 

With Christmas season upon us I find myself in a state of thankfulness. Thankful for my God, thank you for my family, and thankful to my clients. I am also reaching the phase in my career where I have been around long enough to be able to look back and reflect.

When I think about the industry of financial advice, probably more than anything I think about the incredibly talented and honest financial advisors I have met over my career. I’ve been to conventions from New York to California and everywhere in between. And I don’t know that I’ve ever been to one where I did not meet several professionals who not only impressed me, but helped me to elevate my game as a financial professional.

Today’s post isn’t about me.

I still have a long way to go to become the financial professional that I know I’m capable of. Today’s post is about the financial advisors out there who give their clients exemplary service, and who probably deserve a pat on the back from the clients that they serve so diligently.

Below are four reasons to love your financial advisor. They can also be considered four reasons to love your accountant, attorney, or any other professional that works quietly on the sidelines to further your financial success.

#1. They tell you the truth.

The truth is not underrated. After almost twenty years of being interviewed for the role of personal financial advisor, I can tell you that people want to hear the truth. When people meet me for the very first time they don’t come right out and say: “Are you going to be honest with me?” However, with many people that are shopping financial advisors, it is the simple truth, good or bad, that they want to hear.

If you feel that your financial advisor has always been honest and fair with their advice, then that is one reason to love your financial advisor.

#2. They disclose all the facts.

Full disclosure should not be a value-added service component when it comes to financial advice. Full disclosure should be the golden standard. How does your financial advisor get paid? Are they fee-only or do they earn a commission? Are they a true fiduciary, or do they have a greater obligation to serve their employers (think big Wall Street company) best interest versus serving yours?

While it’s not very difficult to get the truth from your financial advisor, sometimes it may be difficult to get all the facts. The devil is in the details, and good business people don’t skirt the details. They disclose.

If you feel your financial advisor does a good job of disclosing critical components of their business dealings, then this is another reason to love your financial advisor.

#3.They boost your confidence.

If you played any sports when you were younger, you probably remember how important it is to hear words of encouragement from your coach. It is not a rarity with my practice to see people who are already doing a great job with their financial plan prior to working with me.  However, most of us still need a little reassurance along the way from someone with more experience. Someone who can ensure us that we are indeed on the fast track to success.

If your financial advisor helps to boost your financial planning confidence even a little, then this is another reason to love your financial advisor.

#4. They are an independent. 

If you ever thought about starting your own business, you already know how much risk is involved with this endeavor. You don’t start out with a benefits package, you don’t have a guaranteed paycheck, and the lives of everyone that you love and financially support are really depending on you to be a success.

I believe most financial advisors would prefer to be employees-- in a perfect world. It’s incredibly challenging to run your own business and juggle so many multiple facets of entrepreneurship. But those of us who have worked both as an employee, and as an independent business owner, know that there is so much benefit for our clients for those of us crazy enough to take this risk.

If your financial advisor is an independent, you can rest assured that they are trying extra hard to give you the best tools and the best advice they possibly can. If your financial advisor is independent, then you have one more reason to love your financial advisor.

Summary

From time to time it’s good to look back and reflect on others who have served you. Maybe today is a good day to be thankful for a friend who has been loyal, a pastor who truly cares, or a financial advisor who has always been a consistent performer.

I hope your holiday season is blessed, and that you are surrounded by people that you love. I also pray that we all take a moment and look at all the people in our lives who have contributed, even if in the smallest ways, to our individual success.

About the Author

Jeff Headrick is an independent FEE-ONLY financial planner and wealth manager with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal.

No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

2019 Tax Tips Everyone Should Know

Hands Holding Letters to Success

Written by: Jeff Headrick, Financial Planner

December, 2018

 

Whether you are a CPA, CFA, or a valued member of the PTA, here are some 2019 tax tips everyone should know.

Similar to last week’s post regarding personal finance and bean counting, this week’s post is also a topic that isn’t first on my list of favorite things to do. And while every year is a good year to sharpen your saw regarding taxes, 2019 especially has some twist and turns with new tax laws that need some attention.

The 2019 tax tips below are universal. By this I mean that they apply to everyone at just about one stage in life or another. But there are a few, for the small business owner or the high net worth family in particular, that may be of interest to a more specific audience.

Like I said, tax planning and preparation are not my faves. However, I have learned over the years that the most successful people that come into my office tend to have a very firm grasp on US tax law basics.

Taxes have significant implications on the outcome of your financial plan. Not having a desire to understand tax implications at all would be like trying to build a championship football team with no real desire to improve your teams blocking and tackling.

Taxes, like football, have basic fundamental elements that if not understood and addressed, can prevent the person, like the team, from reaching their potential. Do you want to have success with your financial plan? Then start here with these 2019 tax tips.

2019 Contribution Limits for Retirement Accounts

Know your limits. Knowing your contribution limits enables you to optimize your financial planning. At Inspire, we’re looking for clients who don’t want to settle for average. Once you get your financial house in order and have created a significant cash flow surplus, it’s time to direct these proceeds to the appropriate retirement account.

  • Annual IRA contribution limit under age 50 is $5,500. Annual IRA contribution limit age 50 or older is $6,500.
  • Annual 401(k), 403(b), and most 457 salary-deferral limits are $18,500. If you are over the age of 50, you may defer $24,500.
  • The annual additions limit under a defined contribution plan is $55,000.
  • The includable compensation for computing contributions is $275,000.
  • The annual compensation for determining a highly compensated employee (used in 401(k) nondiscrimination tests) is $120,000.

Taxable Retirement Distributions

If you are preparing for retirement, prepare to pay some taxes. While your IRA and 401(k) grow tax-deferred, during distribution at the age of 59 ½ or beyond your withdrawals are considered taxable income. If you haven’t already, you may want to seek out a financial planner to run projections on your IRA distributions in retirement, as well as your Social Security, other part-time employment, rental property income, etc.

Understanding these tax implications can bring peace of mind now, and low blood pressure later.

  • Money in a traditional IRA grows tax-deferred, but it is subject to federal and state income tax upon withdrawal.
  • Money in a 401(k) grows tax-deferred, but is subject to federal and state income tax upon withdrawal.

Estate Planning Tips

Estate planning is friendlier than it used to be. I remember when the estate tax applicable exclusion was one fourth of what it is today. While you can’t control when you die, you can be prepared to leave your wife, significant other, kids, or charities, less of a mess.

If you have built up a net worth that is north of $11 million, chances are that you are incredibly gifted, and have a unique set of financial skills. Please don’t assume that the rest of your loved ones possess the same skill sets. Help them most by planning now.

  • The annual gift tax exclusion is $15,000.
  • Top gift, estate, and generation-skipping transfer (GST) tax rate is 40%.
  • Gift tax and estate tax applicable exclusion amount is $11,200,000 + DSUEA*
  • GST tax exemption is $11,200,000**.

2019 Tax Tips for Business Owners

hand making notes in journal

Business owners beware. The tax tips below are reminders of what many business owners forget from time to time (present company included). Also, there is a new perk this year for those entrepreneurial spirits that like to fill out a Schedule C.

  • Combined Social Security and Medicare payroll tax is 7.65%. If you are an employee, you pay 7.65% and then your employer pays 7.65%. However, if you are a business owner you have to pay BOTH portions, for a total of 15.3%.
  • Payroll tax (AKA self-employment tax, or SECA) and income tax are separate animals. First, be aware that you are responsible for the 15.3% self-employment tax (SECA). Secondly, be prepared to determine what your federal and state income tax will be in ADDITION to the SECA. If you didn’t plan on this much tax, don’t panic. You are not the first one to overlook it. Your CPA will help you figure it out.
  • For the first time in history, you can deduct 20% of your small business income from your adjusted gross. This is huge!
  • Read this article from CNBC that provides a clearer picture of this deduction. Or, go straight to the IRS website for details.

Tax Penalties to Avoid

Education is freedom. Anyone with a complicated tax picture, in particular business owners, are going to get letters from the IRS on occasion claiming something positive or negative. In my experience most people that utilize a professional tax preparer never really get upended even if they made an error on a previous return. No one wants to get a letter from the IRS, but in most cases unless you have done something you know you shouldn’t have, the penalties tend to be more reasonable than our imaginations would like us to believe.

  • Substantial understatement of tax liability / 20% of the deficiency
  • Failure to file a tax return / 5% penalty per month, up to a maximum of 25%
  • The tax return has been filed, but taxes have not been paid / 0.5% penalty per month, up to a maximum of 25%.

Tax-Free Money

If you have read this far in this week’s post; here is the desert. In an era of Airbnb, this 2019 tax tip regarding real estate information is one to consider.

  • There's an IRS special rule if you use a dwelling unit as a residence and rent it for fewer than 15 days per year. In this case, you don’t have to report any of the rental income. If you go on a vacation or two a year, why not rent your home out and earn some extra tax-free money? I live in a beach town (Wrightsville Beach, North Carolina), and I know that in the summer even a modest home could bring in rental income of $2,000 to maybe $4,000 per week. If you live in a marquee area such as Wrightsville Beach proper, you may get $4,000 to $6,000 per week or more. It’s one of the best deals around for income tax free profit.
  • If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. IRS Publication 523, Selling Your Home, provides a better understanding. and worksheets. IRS Publication 409 covers the fundamentals of capitol gains and losses
  •  Money in a Roth IRA grows tax-deferred, and is distributed once you reach the age of 59 ½ federally income tax-free.

We hope these tips take some of the monotony out of your tax planning this year. Use them to optimize your financial plan.

 

If you haven’t had an annual review in the last year or so, maybe you should give us a call. We are here to serve, teach, and inspire.

North Carolina clients call (910)448-1450. Tennessee clients call (865)604-2846.

*Basic exclusion amount plus deceased spousal unused exclusion amount (DSUEA). Exclusion is portable.

** The GST tax exemption is not portable.

 

About the Author

Jeff Headrick is an independent FEE-ONLY financial planner with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.

The Holy Grail of Financial Planning: The Annual Review

Annual Review Business Meeting

By: Jeff Headrick, Financial Planner

November, 2018

 

Over the last 20 years my wife and I have enjoyed spending time together watching movies. Recently, we have come upon a new series that showcases the infamous Holy Grail. As legend has it, the Holy Grail is the cup Christ drank from at the Last Supper. In numerous folklore, it is said that a drink from this cup can heal someone from all ailments, and perhaps even bring them eternal life! While I doubt any of this is actually true, it makes for a good flick.

If we simply look up the definition of the word, grail, we find that it means:

“a thing that is being earnestly pursued or sought after”

After hundreds of meetings with clients over the years I have come to respect the initial financial plan more than ever. In my heart I have a tremendous conviction that just about everyone can benefit from working with a financial planner on an initial comprehensive financial plan.­­­­­­

But I have also seen a lot of clients who started out with a tremendous amount of steam in their planning engine, only to fizzle out after six months or year. The reason for this is that some of them haven’t realized that the best financial planning is a continuous process. Just like bathing, you have to do it fairly regularly, or eventually you start to stink.

To Whom Much is Given

I believe to whom much is given, much is required. So, if you have been blessed with tremendous wealth, you may very well need a tremendous amount of financial planning in order to keep, grow, and pass it on. If you are just getting started building your financial home, you still need to have regular financial meetings with your spouse or significant other to reach your financial goals.

The Annual Financial Review

At a minimum, Inspire believes that we all need at least one comprehensive financial planning review per year. We believe this regardless of income or net worth. If you have a net worth upwards of $1 million which may include rental properties and larger investments, you may find it worth your while to increase your reviews to quarterly (or four per year).

Here are six items to check off when you meet with your financial advisor or planner.

  • Review your financial goals
  • Know where you stand (cash flow management)
  • Review your tolerance for risk
  • Review your behavior (behavioral modification) regarding your finances
  • Review your insurance and risk management
  • Review your end-of-life strategy

Review Your Goals

Whether you are saving for retirement or saving money for Christmas presents this year, you need to have a goal. Do you have children? Do they need a college fund? Are you maxing out your 401(k)? If so, what do your projections look like so that you can retire at the time of your choosing?

Know Where You Stand: The Emotional Component

There is a significant psychological component when it comes to our money. Do we hold on to our money too tightly? Do we spend our money on frivolous things? The only way to answer these questions is to conduct a financial review at least once a year. Even a simple one-hour meeting between a couple to discuss cash flow cannot only benefit them financially, but emotionally as well.

Continuously Examine Your Risk Level

Allocating even 10% or 15% of your portfolio from stocks to bonds could possibly save you 5% or more of your portfolio’s value during a market downturn. For a $100,000 portfolio that would be a savings of $5,000. For a $500,000 portfolio that would be a savings of $25,000. One of the best ways to preserve wealth, is to avoid precipitous losses.

Behavioral Modification: A Check Up, from the Neck Up

People are funny with money. Once in a while we all need a check-up, from the neck up. One day we want to save every penny we have to build a comfortable retirement. Three months later we are calling our financial advisor to see if we can take $25,000 out of our account to buy a new boat. A lot of research shows that behavioral coaching is one of the best values in financial planning. Yet another reason for that annual review.

Going too long without a review could result in the need to take significant or drastic measures to get back on track; and tweaks are much easier to implement than a major overhaul.

Rich Ramassini, PNC Investments

Insurance and Risk Management

Insurance is important. Just ask anybody who has survived the wrath of a hurricane in the Carolinas, Florida, Louisiana, or Texas. Younger couples especially have an enormous responsibility to review their life insurance fairly regularly. Taking care of the risk management portion of your financial plan cannot only benefit you, but your children and theirs.

End-of-life Strategy

While none of us like to discuss the certainty that we will one day leave this world behind, we owe it to our spouse, our children, our extended family, our church, and our community to make sure our ducks are in a row. With the incredibly high chance that we will all one day need some form of long-term care, ask yourself this simple question: “What’s my long-term care plan?” Having an end-of-life strategy should not be depressing. It should give you hope and confidence that you have prepared well. And there is peace found when great preparation is made.

­­­­­­­­­­­­In Summary

My wife and I made a pact early this year that we have stuck with for the most part. Our agreement was to have one financial review per month, usually on a Saturday morning. I’ll admit, initially I was a little leery about spending a whole hour of my Saturday once a month discussing the details of our cash flow and savings. I like to think that since I’m a financial professional, that sort of mundane and arduous bean counting is beneath my stature.

However, I can tell you from experience that such a perspective is not based on wisdom but on arrogance. And arrogance will get you in trouble!

Eleven months into our new monthly version of “quality time”, I’m a changed man. I have realized the two heads are better than one, and that my wife is so cool even financial meetings can be made fun—or at least bearable.

I think the Grail of financial planning is the continuous and wise road, and that it should be travelled at least once per year. While initial financial plans are critical, they fall to the wayside if not supported by a continuous system of checks and balances.

One of my favorite quotes: “What doesn’t get measured doesn’t get done.”

If you haven’t had an annual review in the last year, maybe you should give us a call. We are here to help.

Tennessee clients please call (865)604-2846.

North Carolina clients please call (910)448-1450.

About the Author

Jeff Headrick is an independent FEE-ONLY financial planner with Inspire Financial Planning. When Jeff was still in his teens his father died unexpectedly. While his father was a hard worker and a good provider, he did not have the best financial plan in place when he died. This personal experience, coupled with being inspired by Sir John Templeton, Warren Buffett, Dave Ramsey, and the laws of compound interest, prompted Jeff to enter the financial services industry in 1999. He has been helping people with their financial planning ever since.

Jeff lives in Wilmington, NC with his wife and two children. He spends most of his spare time just across the Intracoastal Waterway in Wrightsville Beach, enjoying the beauty of the NC Coast.

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. The information presented does not constitute financial, legal or tax advice and should be used for informational purposes only. Since individual circumstances vary, you should consult your legal, tax, or financial advisors for specific information.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Diversification does not guarantee profit nor is it guaranteed to protect assets. International investing involves special risks such as currency fluctuation and political instability and may not be suitable for all investors. Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance. Past performance does not guarantee future results. You cannot invest directly in an index. Consult your financial professional before making any investment decision.

Investment Advisory Services offered through AlphaStar Capital Management, LLC a SEC Registered Investment Adviser. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.

Consult your financial professional before making any investment decision. Fixed income investments are subject to various risks including changes in interest rates, credit quality, inflation risk, market valuations, prepayments, corporate events, tax ramifications and other factors.

These are the views of Inspire Financial Planning and not necessarily those of AlphaStar Capital Management, LLC, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.