Forethought Planning Podcast

Ep 77: What it Takes to Be Your Own Financial Advisor

January 18, 2022 Shannon Foreman Season 1 Episode 77
Forethought Planning Podcast
Ep 77: What it Takes to Be Your Own Financial Advisor
Show Notes Transcript

Today's Thrive For[e]ward Podcast is focusing on whether you should handle it all yourself. And by that, we mean your financial planning. Should you handle your investment management or hire somebody? What's involved? Well, I break it all down and also offer up some resources to help if you do want to go it alone.

I'm also going to pull back the curtain and ask you a few questions to dig deeper into whether or not you're ready to take on this responsibility. So if you've been having some conversations and debates in your household or with friends on whether or not to manage your portfolios yourself, or to invest in an advisor, I encourage you to listen to the rest of this episode. And of course, we always appreciate it if you share on social media or with your friends. 

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Securities offered through LPL Financial, a member of FINRA/SIPC. Advisory services offered through Advisors' Pride, a SEC registered investment advisor. LPL Financial, Advisors' Pride, Forethought Planning and the guests of Thrive For[e]ward podcast are separate and unaffiliated parties. Lisa Harris and Lisa Harris & Co are not affiliated with Forethought Planning, Advisor's Pride, or LPL Financial. The views expressed here are those of the participants, and not those of Forethought Planning, Advisor's Pride, or LPL financial. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. LPL Financial and Forethought Planning do not offer legal services.   

Hello friends and welcome to the Thrive Forward podcast. I am your host, Shannon Forman, and I am so glad that you ended up here today, we are focusing this conversation on that debate of, do I do my investment management in my financial planning myself? Or do I hire somebody, I always thought, you know, I could save money by doing it myself, and I don't want to pay all these fees to somebody else to do it, I think it's probably just pretty easy for me to do it myself. Well, I'm going to pull back the curtains and ask you a few questions to dig deeper into whether or not you're ready to take on all of this investment management and financial planning yourself. We have resources on our blog, but we would love for you to tune in and listen. So if you've been having some conversations and debate in your household or with friends on whether or not to manage your portfolios yourself, or to invest in an advisor, I encourage you to listen to the rest of this episode. And of course, we always appreciate if you share on social media or with your friends. So let's get to the good stuff.

Alright, friends, so you have decided that you are going to do this yourself. All this Financial Planning and Investment management, budgeting, cash flow, everything you want to own yourself. Well, in deciding in that process, make sure that you have taken a few things into consideration those things we're going to talk through today on this episode of Thrive Forward. So let's dig in a little bit. I say that managing your own finances is hard. There's a lot of emotions that go into things. Of course, there are bits and pieces, you're always going to have to manage unless of course you have your own family foundation where everybody manages your cash flow going in and out. But if you are just your average individual, likely someone isn't writing the checks for you, you have to make sure that you're balancing your checkbook. And I don't know about you, but not everybody register or has a process where they reconcile their register. I used to work in a bank and I remember when many clients who are experienced in age would come in with their register, trying to reconcile right down to the last penny. And man, did I admire that aspect of things? Well, you're definitely always going to have to manage that cash flow. And then there are some other big details to your financial life, your investments, your tax planning your estate planning, one I don't recommend you doing yourself. If out of any area of your finances you spend money on, please spend money on hiring an attorney to do your estate planning correctly so that you don't end up in a scenario where you're giving money in a place you didn't want to or somebody has control of money you didn't want them to.

Nobody wants to make any deals on any napkins or using internet form that might not actually speak the language you want done. So aside from the estate planning, you've decided to do your investment planning and your tax planning and your cash flow planning and your insurance planning all yourself trying to shop the market and see what the best spots are. First things first, understand, as I've talked about this many times on the podcast, what your cash flow looks like, what goes in what comes out what debts you have in what you own, that's your balance sheet or your personal net worth, and your cash flow, or your expenses, AKA your budget. A lot of people don't like to refer to it as a budget. So I call it cash flow sounds a little bit sexier. And in all reality, when we start to think about flow, and money and the energy, I think cash flow responds rather well versus the analogy of a budget that might feel like you can't actually spend any money. In order to understand the things that are going in and coming out though you actually have to spend some time looking things over. It isn't always about finding the next best thing. Let me just tell you, as an individual investor, if you decide to do this yourself, you're gonna need to understand what you can afford to save and invest. And you should make sure that you have money set aside in a rainy day fund if that investment management doesn't go the way that you planned or there is a big expense that you might have. I'm going to talk to you a little bit about some of the things that you can should consider and then some of the apps tools and resources that are out there that you can utilize. I will tell you this, whatever apps, whatever Robo or whatever piece that you decide to include, from a technology standpoint, never replaces an individual and the research and the vast biggest muscle in our bodies, which is our brain. So yes, of course, I empower you to learn and understand. And also, if this isn't your jam by the end of this conversation, then maybe it is an opportunity for you to have a conversation and hire somebody to do this part. So after you've decided what's your cash flow looks like, and an understanding of what you can save and what you can invest, it's really a matter of understanding what your time horizon is, and what your risk tolerance is. So your time horizon is how soon you're going to need that money. You don't want to put your money in anything that's going to have surrender charges, or lots of volatility before you need that. In fact, for most of my clients, I don't want them to invest any money that they're going to need in 18 months, I've had clients who are going to buy houses who have sold houses, and we are not going to invest that proper profit until they find another property, and they have locked in at that new mortgage or paid for that house in full. We aren't going to invest any of that money. Investing in the market is a long term strategy, not a short term strategy. In fact, when you start to invest in the market in a short term type of strategy, and you want to consider a strategy that is all over the internet, like day trading, let me just tell you, it does take a lot of time and energy and resources and abilities to research at the drop of a hat and understand what's going on in a company don't just follow a trend because let's say, I don't know, right? It says that you should it isn't necessarily something that you should do you need to understand what are the places that you want to? Is it a solvent company? What's the cash flow of the company look like? how are decisions made? Those types of things understand the actual financials of a company? Before you even get to that though, you need to understand again, your time horizon, when do you need this money invested in a company because it's, quote unquote worth it or trending doesn't mean that it's going to be there when you need the money. Money fluctuates, when you put money in the market, it will end could go down, and it will and could go up. So it's going to depend on the time in which you need something. So again, as kind of a flavor, I tried to keep it anything less than 18 months isn't money that you're going to invest, and then really looking at it as something that you're looking out many, many years in advance so that you can absorb the ups and downs of the market. The other piece that I mentioned is risk tolerance. So time horizon is the time that you need the money risk tolerance is what do you feel comfortable with? When you look at that account value? Whether you're looking at it online, or on a paper statement that gets mailed to your mailbox? How much of that fluctuation Do you feel comfortable with? Is it a Sunday drive or a roller coaster ride. And if you're comfortable with a roller coaster ride are the other parties involved in your relationship, your partner or your partner comfortable with that level of fluctuation in the risk that you're going to take. For instance, we look at it with higher risk comes higher reward. When you are taking on more risk might you have more reward in return well, potentially. And vice versa. If you have a more moderate return, you might be taking on a little bit less risk. However, again, anytime you set foot in the market, the risk that you're willing to take is that your money could go to zero. So you have to understand that especially when you're taking risks in any sense of the word when it comes to day trading or other, you know, speculative types of investments, please make sure you do your research and have a good understanding before you get there. The other piece is the actual investments that you're investing in. Now, when we talk about investing with our clients, we take on a strategy that's called asset allocation. So we're making sure that we have a diversified portfolio within the investments that our clients are choose. That being said, asset allocation can get a little tricky if you aren't doing your research but essentially, you want lots of variety of pie within your big pie. You want large cap stocks, mid cap, small cap, emerging markets. You want bonds, you want real estate, you want commodities, all different types of investment strategies to create that. Now, they don't all have equal parts, it depends on your risk tolerance. These are all things that you can research from an asset allocation model perspective. Or you can use funds that already have those types of strategies to. But again, these are things that you'll need to decide yourself as you take the reins of your own portfolio, there are things to consider, like the cost associated with different funds. Sometimes you have ETFs, sometimes you have mutual funds, sometimes you have individual stocks, there are going to be costs with different whatever pick trading platform you decide to choose, when it comes to actual investing. Do you want to pay every single time you make a trade, there are platforms that will charge you that and there are platforms that won't charge you that I don't encourage you one way or the other, you just have to find out what's right for you. ETFs usually come with a lower internal cost, although there still might be a trading fee of you buying or selling. There are also internal costs and any investment strategy that you might choose, with the exception of individual stocks, ETFs mutual funds, they can vary with the complexity of the makeup of each one of those investments on what those internal costs are. We call them expense ratios in our business. And you can look those types of expenses up online and have a good understanding of what those internal costs are that are associated, because those don't show up on your statement, my friends, those are things that get hidden and buried within a prospectus. And so it's, it's making sure that although you know, you're not paying somebody a management B, you're still paying a fee to somebody somewhere, whether it be a trading platform fee, or an internal costs associated with the investments that you choose. Also, remember, anytime you're picking index funds, ETFs, or any type of electronically traded fund or an algorithm that's based on a computer finding a rhythm, that's not necessarily a person that's behind everything. So you do want to make sure that you feel comfortable with ebbs and flows of whatever investment you're choosing to align yourself with what again, risk tolerance is associated with that. So just to recap, a couple things that you should think about before you actually choose an investment strategy is what is your risk tolerance? And what is your time horizon. Secondly, once you get into those spaces, you want to understand the costs that are associated as you're picking some of those platforms. Then as you begin to invest in these things, you want to make sure that you're realigning rebalancing, understanding what's happening within your portfolio. This can also be not only your 401k, or your retirement plans, but your individual portfolios that you manage, you really should at minimum be looking at those on an annual basis. If they are non retirement accounts, or as we refer to them as taxable accounts. You want to make sure that you're understanding what are the capital gains associations with that, how can you realign to either see and realize some of those capital gains or capital losses based on a tax planning and strategy. Again, if you're deciding to do this on your own, or work with a tax professional, you want to make sure that you're understanding those consequences. And again, if you're doing some trading on a short term basis, taxes may be implicated in a completely different fashion than if you were to hold things long term, not here to give you individual tax advice. But just make sure that you're keeping yourself honest and understanding what the tax laws are and how any trading that you do might implicate your own personal tax returns. So as we continue forward, I wanted to be able to give you a few applications are different things that are out there. We're going to start with cash flow. And we're going to go into some investment platforms that might be helpful for you to utilize from a research standpoint, or just general management. So friends, as we talk about the investment side of things that we want to again, understand the fees and things that are associated. So like I said before, with the pieces that you're using for a budget, make sure that you're leaning in and understanding from Consumer Reports Forbes other really great magazines, and resources. Morningstar is another one, that from an investment standpoint, you would want to make sure that you check out but again before you sign up as an individual investor who is managing your own portfolio, this Something that you do want to roll up your sleeves and spend some time understanding without just jumping into different things. And again, understand your resources that are available to you. There are traditional resources and then again, their social media, but are you going to believe everything that you read or listen to or hear or engage in at the watercooler? Well, then social media really shouldn't be your resource for how you get your investment advice. In fact, I, as a professional, utilize Morningstar. Anytime we are looking at the construction of different portfolios, there's so many different things that you can dig into there yourself. There are free resources on Morningstar, and there are paid editions that you can pay for to get even more souped up, as you're researching different funds, their internal expenses, their performance, all of those different things. And when you start to talk about different trading platforms, there are trading platforms that we're used to like E trade, Schwab, fidelity, those are all going to charge you nominal fees for trading. And then there are new places like Robin Hood, who are not going to charge you a trading fee, and lower the amount of initial investment, I did mention stash as a part of the budget management, they also have an investment platform as well. And then there are a few that are probably not as well known out there that are, you know, zero Trade Commission's or very minimal amount of trades that are charged is one. So phi and TradeStation are a couple others. And again, like I said, we will link the article there. We found some of these pieces in for you. On our on our blog, there are a few more apps. And I think that you could probably go cross eyed seen how many applications are out there for you. But when you are looking at things as something as a beginner wealth base is a great application to grow your understanding of how the stock market works, and what should you be investing out there. And again, understanding a little bit of the education behind things. If you are a more of a sophisticated type of investor and you want to create a portfolio with lower cost investment vehicles. Wealthfront is another great application that you can utilize as well. Again, we have no affiliation with any of these, you need to do your homework as an investor to understand what is the best basis for you, if you are really just kind of trying to force that savings and pick, you know, smaller investment strategies to start worth. Acorn is a great strategy. I kind of always think anytime we talk about acorn, I think about it as a little squirrel with little money is getting taken away. But as I talked about, if you're trying to squirrel money away, acorn is a great app for just rounding and having additional transfers sent to you know, an IRA or Roth or another investment account at a fairly low cost. They do have some, you know, monthly costs, but again, very minimal in the grand scheme of things. So, again, we will tag a lot of these resources in our blog. But I do think it's the most important for you to start to consider, wow, we just talked a lot about a lot of things. And we didn't dive into even some of the more advanced tax planning aspects of things or even the charitable giving, or the tax planning and parts of things we really just touched on cash flow and investment strategy. And let me just tell you from a financial planning basis, there is so much more that's kind of at ground level. And you have to consider what is it that you want to invest in? Do you want to invest in a partnership with someone else that's going to help you get to the place that you want to get to and provide you a roadmap to get there? Or do you want to draw that roadmap yourself? And are you willing to put in the time and the effort that it takes to do the research and not just blindfold yourself and hit Eeny meeny miney moe, because I don't want you to hit Eeny meeny miney moe with your future and I certainly don't do that with my clients. I forgot one big piece to managing your own portfolio and it's probably one of the most important pieces, but who's gonna emotionally keep you in check. So when things start to go awry, or the market goes up and down, who is going to be that check person? How are you going to handle the behaviors of your finances? I know this is getting a little philosophical. But I'll be very frank and honest, a lot of what I do isn't just the nuts and bolts of investing a lot of what I do is helping to coach people and have those conversations. When life just happens, what happens if you lose your job? Where's the best place to access money? What happens if you receive an inheritance? Where do you put it all? How do you structure it? What are taxes? What do you need to be doing? Again, there are a lot of emotions that come with life, but also like, when the market really starts to go down, and you decide, I don't like anything that's happening, I'm going to pull out, rather than writing it out, and maybe watching it come back up again. You see, you need to be very comfortable with the emotions that are going to come and go. So my friends, who's going to coach you through all of that, a you strong enough to do that yourself? Or are you going to have some sort of accountability partner? Or is this where an advisor does really come in, and make it worth it? A lot of times people will tell you all about the winds, but they won't tell you about the downs. So

let's think about that, my friend, who will be that for you. So there's a lot of thought process and understanding and research that goes into any financial planning process. So kudos to you if you are taking this on yourself. And also, if you just listen to this entire episode and said, Holy buckets, there is no way I want to do this myself anymore. I thought I wanted to I thought it was going to save money. But what is your time really worth? In this process? is your time worth it? To be able to sit down and research and do this yourself? Or could you be doing other things with your life, not spending the time researching apps that you should be using and researching the stocks that you're going to invest in or the investment vehicles, doing all the tax planning yourself? All of the things that are ingrained into all of this now we aren't tax planners at forethought planning, that would be somebody that you would hire on the side and we would partner with or we have resources that we could extend to you as well. But think for yourself, is this something that you really want to do? And if you say no, then please go to forethought. backslash wealth assessment today, and we would love to come alongside you and help draw up your roadmap and your financial plan to get you to the place that you want to go financially. Because I as I always sign off every single one of these podcasts. And I truly believe it deep down in my heart, my dear friend, you are worthy of wealth. The views expressed here are those of the participants and not those of forethought planning advisors pide, or LPL. Financial all investing involves risk including loss of principal no strategy assures success or protects against loss securities are offered through LPL Financial and member of FINRA and SIPC advisory services offered through advisors pride and SEC registered investment advisor LPL Financial Advisors pride forethought planning and the guests of the Thrive Forward podcast are separate and unaffiliated parties,

investors should consider the investment objectives, risks, charges and expenses of the investment company carefully before investing the prospectus and if available, the summary prospectus contain this and other important information about the investment company. You can obtain a prospectus and summary prospectus from your financial representative. Read carefully before investing

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