Mistakes are Expensive: A New Generation Embraces Financial Planning at the Mid-Stage

Financial planning has evolved beyond investing assets. The old model limited comprehensive planning to a wealthy few with high levels of manageable assets. For many people, their first engagement with a financial advisor was when they needed to create a retirement income plan.

The new fee-only model allows financial advisors with experience and knowledge to assist across the landscape of financial life. And a new generation with very different goals is taking advantage of all the elements to create plans that work for them.

  • Retire early, create “work optional,” or work part-time
  • Save for kids’ college
  • Enjoy life now – and save for the future
  • Invest in a second home or rental property

This generation has created high income and realizes they do not have to wait another 20 or 30 years to have the lifestyle they truly want. They understand that financial planning is all about tools, tactics, and strategies that can be deployed in tandem to help them keep more of what they make and actively grow their wealth.

It’s about understanding the options, making the right choices for a highly individual path forward, and solving problems.

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Staying Safe Around Bears

The S&P 500 recently breached bear territory, which is largely agreed to be a market that has dropped 20% from a recent peak. It’s common to see some retracing. The “bear-market bounce” is real.

However, even if the market recovers a bit, it will take some time, good sentiment, and real economic progress for performance to climb from bear to correction to neutral to positive.

In the meantime, outside of a short, sharp drop in 2020, we haven’t seen this volatile market since, you guessed it, 2008.

Driven by inflation, global uncertainty, supply chain issues, and rising rates – economists are predicting a recession in the months and years ahead. Some are even saying we’re in a recession now.

With a bear market, and 20%+ drops in the market, comes a wave of emotions: Stress, sadness, and anxiety. The list can go on and on.

The National Park Service has a lot of advice for safeguarding yourself when you encounter not-Smokey out in the wild. And much of it is based on psychology and managing your own fear, so that you stay in control of yourself and the situation.

We’ve borrowed from that playbook to give you tactical pointers in navigating bear markets, volatility, and turbulence.
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July Market Commentary: Will the Fed’s Rate Resolve Lead to Recession?

June Recap and July Outlook

After a barely positive May, June saw the bear market return across indices. We ended up with the worst first half performance since 1970. A mid-month surprise 75 basis point rate hike at the June FOMC meeting, followed by Fed Chairman Powell’s testimony to Congress in which he indicated aggressive rate increases at the July and September meetings, convinced markets that inflation is the priority for the Fed.

Chairman Powell indicated that the current level of inflation – a historic 8.6% – will require a short-term rate of at least 3% to get to a neutral level. With the Fed funds rate currently at 1.50%-1.75%, that means several more rate increases this year.

Are we headed for a recession? Are we already there? Or is the Fed’s plan to slow the economy and bring the labor markets into balance beginning to work?

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GMB #136: Taming the Cost of College With Brad Baldridge

Properly planning for a college education has become one of the crucial decisions that could define the future of a young adult. This week on Grow Money Business, we’re joined by Brad Baldridge, a licensed financial planner, consultant for college funding, and main podcaster for the “Taming the High Cost of Education.” Brad assists families in preparing and saving for college by offering individualized planning services and insights on the most recent tax, cash flow, and academic strategies. Throughout the episode we discuss many important strategies for reducing the cost of college expenses.

 

 

Show Notes

[01:54] Background – Brad describes how he became interested in college planning and shares some thoughts on why it is so expensive.

[05:23] Sticker Price – Brad explains the evolution of sticker pricing and how it impacts college planning.

[21:24] Process –  Brad walks us through his advising process on how he helps individuals apply, enroll, and select the best school for them.

[27:16] Strategies for Business Owners –  Brad explains what company owners should know about planning and paying for their children’s college education.

[45:36] Common Mistakes – Brad outlines several common mistakes people make when planning for a future college education.

[50:22] Best Choice – Brad explains how to differentiate between applying to a college with a reputable financial aid office versus one that may not be as transparent.

[59:42] Taming the High Cost of College – Brad describes how his college funding company serves its clients.

 

Resources

GMB #135: A Longer Look at Inflation & Monetary Policy With Kirk Chisholm

In recent months we’ve seen the highest inflation rates in the United States since the 1980s. As a result, many people seem to be concerned about the ripple effects of inflation and what the Federal Reserve is doing to handle it. This week on Grow Money Business, we’re joined by Kirk Chisholm, an expert in inflation, monetary policy, self-directed IRAs, and 401K. Kirk is also the wealth manager & principal of Innovative Advisory Group, which reshapes the wealth management industry via innovation. In this episode, Grant and Kirk dive deep into inflation and the current state of the markets.

 

 

Show Notes

[02:27] Background – Kirk describes his background and his journey thus far.

[05:54] Risk Management – Kirk provides a thorough overview of risk management from a portfolio perspective and how he applies it in his firm.

[15:59] Inflation – Kirk offers comprehensive perspectives on the current state of the markets.

[24:31] Deep-dive Into Inflation – Kirk and Grant dive deep into how rising interest rates will impact the United States economy

[48:22] Banking Systems – Kirk discusses the impact inflation has on banking systems, as well as his unique approach to investing money.

[01:00:40] Federal Reserve – Kirk shares his opinions on the Federal Reserve.

 

Resources

Is a Self-Directed 401(k) Right for You?

Contributing regularly to a 401(k) plan is the foundation of retirement savings for many people. You determine the percentage of each paycheck you want to contribute, and you either select a target-date fund based on your expected year of retirement or pick from a relatively limited selection of mutual funds.

But what if you had more control? Suppose you’re a do-it-yourselfer in other areas of your investment plan. In that case, the limited options in a 401(k) can be very constraining – especially when it is often your most significant investment pool. If you prefer to have someone else manage your investments, you may be able to find an advisor that will make recommendations inside your plan, but again, they will be limited.

If you have multiple plans from different employers or a concentrated stock position, it can be difficult to line your 401(k) investing up with your risk tolerance and overall financial picture.

There is another option for investors whose employers offer the ability to self-direct your 401(k).

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It’s Not About Inflation, It’s About Volatility

Inflation is driving the headlines and wreaking havoc on budgets. But for long-term investors – mostly everyone – short-term inflation isn’t the biggest risk to financial plans. Volatility is. It’s being fueled by the Federal Reserve’s efforts to balance bringing down inflation with keeping the economy out of recession.

The Fed is raising the key short-term interest rate to slow economic growth. This makes money more expensive, which you know first-hand if you have a credit card account or you’ve tried to buy a home or refinance an existing mortgage.

The reason this is generating volatility is that markets hate uncertainty. Markets are forward-looking and attempt to price into stocks and bonds today, things that will likely happen in the future. The issue is that the Federal Reserve can’t tell the markets in advance exactly how much and when they will raise interest rates because it’s a delicate task depending on a lot of ever-changing economic data. And let’s be honest, probably some guesswork.

Fed Chairman Powell, and the Fed governors, have been examples of message discipline. They’ve been doing everything they can to reassure markets. But while markets may be rational, investors aren’t.

So, as an investor, how do you cope with volatility? We have some pointers.

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What Just Happened? The Fed Increases Velocity and Accepts Reality

The Federal Reserve raised the key short-term interest rate by 75 basis points in response to the release of the May headline CPI number, which increased to 8.6%. This marked the first 75 basis point increase in the Fed funds rate since 1994. That wasn’t the most unusual thing about the announcement. All year, Fed Chairman Powell has been striving to telegraph to markets exactly what the Fed’s intentions are with rates. Clarity and allowing time for markets to adjust has been the strategy for minimizing disruption.

The CPI inflation number release came at the tail end of the “blackout” period the Fed observes around communications before an FOMC meeting. Without the ability to communicate the Fed’s thinking to the markets, the Fed Chair had to weigh the possible loss of credibility such a surprise announcement would cause against the urgent need to combat inflation aggressively.

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GMB #134: Crowdfunding Opportunities in Real Estate With Craig Cecilio

Historically, if you wanted to purchase a private investment, you had to qualify under the SEC’s standards as an accredited investor. After 2012, certain regulatory modifications made private investments accessible to non-accredited investors. This week our guest is Craig Cecilio – CEO and cofounder of DiversyFund Inc. DiversyFund is a crowdfunding platform that enables everyday investors to generate wealth by democratizing alternative asset investment.  

 

 

Show Notes

[03:36] Background – Craig explains what caused the regulatory changes that opened up private investments to non-accredited investors. 

[11:37] More Opportunities – Craig shares his thoughts on why opening up investments makes the most sense.  

[15:16] Craig’s Story – Craig describes how his real estate investing background led to the founding of DiversyFund, Inc.  

[27:28] Best Practices – Craig shares some important considerations when it comes holding or selling properties. 

[29:18] Communication Cycle – Craig describes what it’s like to report to 30,000 investors and how he considers their needs when making decisions. 

[35:29] Communication Transparency – Craig stresses the significance of transparent communication. 

[39:26] Process – Craig outlines the steps required to acquire his company’s services. 

[43:43] New Strategies – In addition to expanding geographically within the multifamily industry, Craig reveals his plans to offer new and alternative strategies.  

[46:19] Lifecycle of Funds – Craig shares when it makes sense to collect money from investors in relation to the lifecycle of the funds. 

[48:32] Challenges – Craig discusses the most challenging aspects of business expansion. 

 

Resources

GMB #133: Retirement Income Planning in 2022

Managing income after retirement is one of the most important things a retiree needs to plan to make the best of their savings, and with the rising interest rates and stock market volatility, there are many factors that need to be considered. This week on Grow Money Business, Grant dives into several key aspects of retirement income planning, including how to minimize tax impact, prioritizing different sources of income, planning for social security benefits, making strategic tax decisions, and more. 

 

 

Show Notes

[02:36] Recent Developments – Grant shares his thoughts on some of the recent changes in the economy and policies that affect the way people should approach retirement planning. 

[05:24] 401k Plans – How to maximize tax benefits while utilizing a 401k. 

[11:33] Expenses After Retirement – Grant explains how to best manage your after-retirement expenses 

[16:11] IRAs & Tax – Grant explains the tax differences between traditional and Roth IRAs and what retirees should keep in mind when taking money from these accounts. 

[21:00] Strategic Tax Decisions – Grant shares a strategic move that allows retirees to minimize the tax impact on their retirement accounts while taking advantage of the gap years between the age of 65 and 72. 

[29:17] Deferring Tax – How to decide whether it is beneficial to defer tax based on life expectancy 

[32:46] Medicare Premiums – How to plan for minimizing Medicare premiums after retirement. 

[39:06] Social Security – Grant shares his take on maximizing the social security benefits after retirement. 

 

Resources