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Financial Advice and Advisers


Some feedback over the nine years of writing about money on Consumerism Commentary indicates that there are some readers — not necessarily daily readers and fans of a website, but those who are searching online about some finance-related topic and are at best passing by any particular website — are looking for quick answers. People want to be told what to do instead of making a choice on their own, or they want to confirm or affirm that a particular financial decision was a good one.

I’ve never been a fan of flatly telling people what to do, particularly when it comes to financial advice. Financial advice is personal, and it’s difficult to prescribe specific actions to a mass audience. Groups are composed of individuals, and every person has his or her own situation that might differ from the average. Some generalized financial advice fits all sizes and situations, but when you get to the more interesting aspects of personal finance or begin examining the details, that’s not always true.

Motivational speakers who focus on finances succeed — and their success is often defined by their profit from seminars, books, and other products sold to consumers who should probably be saving their money — because there is a great audience of people just waiting for permission to take action. At some level, they know it’s good to focus on their personal finances, but need someone to inspire the first step with a push.

Depending on the motivator, that push might take the form of a big “DENIED” graphic flashing on the television screen or some actionable information about investing in real estate. Regardless of the form, it has the capacity to inspire thinking about personal finance, if it doesn’t permanently damage the listener’s psyche or portfolio. But the more popular the guru, less of the action is a result of thinking and more of the action is a result of blindly following.

I’ve tried to focus on the thinker, and that approach has done well to shape the Consumerism Commentary audience over the years. I certainly have my opinions, but — and perhaps this prevents me from generating a rabid fan base (and I have no problem with that) — I prefer to keep myself out of the advice except occasionally sharing my tempered opinion or stories from my own related experience. I can offer two sides of an argument when there are valid points on both sides, and I try to present them in a way that helps readers consider their own situations and make their own decisions.

Once in a while, I receive a comment in response to a contemplative article like, “I wish you would just tell me what to do.” I want to respond, “I’m not your dad.” Not to bring a cliché into the discussion, but isn’t it better to teach a man to fish than it is to give him a fish? To me, that seems to be the point of education. Provide people with the tools they need to make their own best decisions rather than telling them what to do.

When talking one-on-one, it’s much easier to analyze a situation and provide individualized advice, but when discussing a general issue online, that’s more difficult.

A good way to address the problem of finding answers that are applicable to everyone is to address one specific situation at a time. Given enough situations, readers can often relate to at least one. This is the approach Liz Weston has taken in her latest book, There Are No Dumb Questions About Money, available on the Kindle and from iTunes. The book features many of the questions — describing specific financial situations — Liz has received over the years. Readers of the book are sure to find situations described within that match their own. I’d be happy to take specific financial questions as well. Those I can answer, I will, and for those that require someone who is more of an expert than I am, I will seek an answer from a professional.

It’s a win-win situation, as corporate motivational speakers might say. Questions provide me with great ideas for new articles, and readers receive advice for overcoming their financial obstacles or for making better financial decisions. When it comes to writing for a wider audience, however, I feel I have the responsibility not to tell people what to do, expecting them to blindly follow these suggestions. Being an adult in a society where education is valued is all about thinking for yourself, consulting experts when necessary, and making the best decisions, on your own, that are best for you.

This can certainly be difficult when salespeople are disguised as experts. When you don’t have a lot of friends who understand the mortgage industry, for example, you rely on the bank’s advice for making decisions. If the bank says you qualify for an expensive mortgage and they show you some calculations, however flawed, to prove their point, you trust them. Then you might find yourself in financial trouble when interest rates increase, tax rates increase, or your home loses its market value.

You want to blame the bank, and in some cases, you were misled and you can, but for the most part you have to own your decisions. You can better own those decisions if you are willing to exercise the mental capacity to analyze your situation and the choices confronting you. That’s why I don’t often prescribe a course of action.

There are guidelines, however, that tend to work well regardless of specific situations. Start saving and investing as early as possible. Minimize expenses and maximize income. Spend less than you earn. These are just guidelines, though, and not very specific. Once you start getting into the details, how you go about changing your actions and attitude depend on your individual situation.

People may be looking for a simple answer to questions like, “With some of my extra cash flow, should I invest more or pay off my mortgage.” I can give a simple answer. I could say that the best choice is always to invest more, and I can cite enough supporting evidence to back that statement up with facts, statistics, and reasoning. I could advise readers to pay off the mortgage and have other facts, statistics, and reasoning to support that answer. There are other details you need to know to give informed advice to any household considering this question, however. If you really want the best answer to this question, you would need to share more information, starting with the following:

  • What is the interest rate on the mortgage?
  • What is your preferred investment?
  • How much time do you have left to pay off the mortgage?
  • How averse are you to risk?
  • What type of return are you expecting on the investment, and do your expectations have a good chance of being accurate?
  • What other financial obligations do you have?
  • How much time do you have left before you’d like to retire?

I don’t see how anyone can offer solid advice without answers to these questions to start, yet people are looking for a quick answer, such as, “It’s always better to pay off your mortgage faster rather than invest when you have extra cash available.” Financial writers can say that, or they say the opposite, but it really doesn’t help anyone in the long run.

To everyone who has come to Consumerism Commentary looking for a quick answer to a complex financial question, I apologize. I may take that approach sometimes, and when readers offer specific questions with enough detail I might entertain one-on-one advice, but when it comes to larger issues affecting a group I am much more likely to consider all sides and encourage readers to analyze their own situations with a little more perspective. With the expanded perspective, readers are better prepared for making their own decisions and taking responsibility for their actions.

As an aside, I don’t always temper my opinions. I’ve been very outspoken about the Debt Avalanche (which as far as I know, is a term coined by me, though the concept certainly existed before) method of paying off credit card debt. I’ve pressed this issue because a strong opinion is necessary to counter the massive marketing machine behind what is known as Dave Ramsey’s Debt Snowball approach. I don’t intend to get into the details here; visit those articles for discussions about why.

Photo: A Roger Davies

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Last week I met with a Certified Financial Planner for the first time. This was a free service provided by Vanguard, so it was a good opportunity to speak to a professional about my specific situation. For many years, I’ve been relying on mostly generalized advice, whether from books, large communities like the Motley Fool discussion forums (particularly the Living Below Your Means section), financial columnists, or a community of bloggers that has grown from fewer than a dozen to more than a thousand.

My financial planner and I started by discussing my goals. This was tough for me, as I’ve changed my long-term goals several times in the last decade. I’m trying to find the right mission for my life. I’ve made personal finance my passion since the creation of Consumerism Commentary in 2003, but long before that date I was passionate about other aspects of my life. I need to look at how I want to spend the next twenty, thirty, or forty years of my life and some of the more important developments along the way, like having a family.

From a financial standpoint, my next major expenditure will most likely be a house, though that purchase relies on making other choices in my life first.

With my current level of investable net worth — my assets outside of an emergency fund and money put aside for shorter-term goals like a house — I’m willing to give up potential returns in the stock market for less risk. We decided on a mix between 60% stocks and 40% bonds. Complicating the issue is the fact that almost all of my non-cash investments are in stocks. It will be important to look at my portfolio as a whole rather than analyzing my 401(k) separately from my IRA and separately from my taxable account. This is where tools like Quicken, offering charting and reporting across a variety of accounts regardless of where they are held, come in handy.

The 60%/40% split between stock funds and bond funds is more conservative than I would generally recommend for someone my age (thirty-five), but that might be appropriate based on my lower needs for long-term returns and need for maintaining value in the intermediate term as I determine the next steps for my life.

Before discussing specific investments, I made sure the planner was aware that I prefer index mutual funds rather than ETFs, managed mutual funds, or individual investments. The planner suggested that 70% of the stock portion of my portfolio be invested in the Total Stock Market Index with the remaining 30% in the International Stock Market Index. Half of the bond portion of the portfolio should be invested in the Intermediate Tax-Exempt Bond Fund with the other half in the New Jersey Tax-Exempt Municipal Bond Fund. I’m not sure how excited I am about the prospect of investing in New Jersey, but the tax advantage could be helpful.

I brought up the issue of tax efficiency. It was my understanding that tax-efficient investments, such as the bond funds recommended, should be invested in taxable accounts, while investments that did not offer any tax advantages should be invested in retirement plans like 401(k)s and traditional IRAs, where the tax is deferred until retirement. After analyzing my tax situation, the planner concluded the opposite would be true, admitting the idea seemed counter-intuitive. In today’s environment, the tax rate for qualified dividends, the result of stock-based mutual funds, is 15%, while income from bond-based mutual funds is taxed at ordinary income rates.

However, the bond funds he suggested to are federally tax-exempt, and one is also state tax-exempt as long as I continue living in New Jersey. The adviser’s suggestion to invest in bonds in my tax-deferred retirement accounts might make more sense if those investments were not tax-exempt. I think there’s a piece of discussion missing from my notes that might have explained this situation with a more satisfying rationale. I’ll seek a second opinion about this particular aspect of my planning.

With most of my portfolio in cash, the planner suggested moving these funds to stocks and bonds slowly, over the course of eight quarters. Leaving behind any amount I’d like to have let in cash at the end of two years, I would divide the remainder by eight to determine my quarterly investment amount. This method of dollar-cost averaging could ease the pricing risk inherent in investing a lump sum.

If my goal is only to have money for retirement, my time horizon would be long. Again, I’ll need to define some of my life goals to determine time horizons for specific pools of assets. That would be a topic for a later discussion.

In summary, these are the main points of our discussion:

  • Six months to one year of living needs in cash, including an emergency fund and any other spending needs.
  • With the rest, a 60%/40% split between stock funds and bond funds.
  • Using a dollar-cost averaging investing strategy over the next eight quarters for current funds.
  • Add the bond fund portion to 401(k) investments and stock fund portion to taxable investments.

What do you think of this strategy?

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On Tuesday, I had a phone consultation with a Certified Financial Planner from Vanguard. It was an initial meeting, wherein we talked about each other, focusing on my goals. I tried to take into account many of my own suggestions for working with a financial adviser, but in preparing for the meeting, I realized — well, I’ve known this, but nothing brings an issue more to the front of the mind than being required to think about it — that I’m not sure about the next steps I’d like to take with my life.

I’ve been running Consumerism Commentary since 2003. While I started it as a hobby and an opportunity to learn how to manage my own finances, it has grown into a business of its own, allowing me to leave my unsatisfying day job and work for myself. I don’t see myself doing this forever. When looking at the long-term possibilities, there is a significant opportunity to grow this business, but I also need to ask myself if that’s the right direction for me in the long term. I’m not particularly interested in writing a book, like many other personal finance bloggers have done. I love writing and building communities, and that’s been the core of what I’ve been doing since the early 1990s; I was just lucky to apply these interests to personal finance at the right time — a time I needed it from a personal perspective and a time at which the world would suddenly show a growing interest in independent financial voices.

It’s important to know and understand life goals before talking with a financial planner in order to devise a plan that matches those goals. When I left the non-profit arts management world in 2001, my dream was to re-enter when I was in a better financial situation. And while I thought it was an impossibility at the time, I liked the thought of starting a foundation if I ever found myself in the position to do so, never thinking I would have that opportunity. Today, I’m not convinced that is the right path for me. For now, I plan on continuing what I’ve been doing, but working harder to identify where I’d like to see myself in twenty years.

Of course, people set goals all the time, only for life’s circumstances to move in a different direction. All the best planning in the world can’t take into account changing interests and desires. Regardless of my contemplation over goals, I met with Vanguard’s financial planner. I came away with a good strategy that I can use for my investments while mapping out my future. He also helped me understand why, given the option and a desire to have tax-efficient bonds in your portfolio, it’s better in the long term to have bonds in accounts like 401(k)s and any stock funds in taxable accounts, the opposite of what I thought would be a good tax strategy. This is an idea I’ll share in a future article. Update! Read more about the investing strategy I discussed with the Vanguard financial planner.

The financial planner I spoke with is not paid by commission. He understood I subscribe to the index fund philosophy, and recommended only index mutual funds — and only four specific funds for the right diversification and asset allocation that will allow me to likely perform better than a savings account, invest for the long-term, and give myself a cushion to think about the next steps in my life.

Here are some interesting articles I came across this week, including one of my own published elsewhere. Read the full article →

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People frequently ask me to share the best piece of financial advice I’ve ever received. Most recently, this was a common theme at the Financial Blogger Conference in Chicago. One company in attendance, creditcards.com, filmed and edited a video of various personal finance bloggers sharing their best piece of financial advice. I think it’s important for people to share what has worked for them, and their inspiration, as they succeeded in improving their financial conditions.

I find it difficult to remember my attitude towards money as a teenager. I just didn’t think about it often. I understood the importance of earning an income, I had a bank account, and I had occasional jobs as I was an older teenager, but I never placed any emphasis on money management. I didn’t think about budgeting, investing, or looking for income opportunities because I was mostly concerned with my extra-curricular activities first and academics second. I don’t recall my parents ever making money a real issue, and I’m fine with that; if kids can be protected from the added stress of financial management until they’re older, they’ll do a better job of making the most of their adolescence.

But I did sail through college and my first few jobs without thinking about my financial condition, and I eventually paid for it. I had student loan debt, credit card debt, and thanks to some other mistakes, unpaid speeding tickets, a suspended driver’s license, an auto insurance surcharge, and many other expenses and debts I could have avoided.

I didn’t always get along with my boss, but he was a leader whose primary responsibility included motivating a group of 128 talented teenagers and young adults through monthly weekend rehearsals during the fall, two-week camps during the spring, and a seven-week tour across the country during the summer. It was a music program, but it also presented the group of students with the opportunity to improve themselves and their approaches to life, with lessons that would stick with them and inform how they live each day in the future.

The advice that has stuck with me the most, although it didn’t sink in until years later and I didn’t recognize it at the time, isn’t a piece of financial advice. It’s advice about life, attitudes, and philosophy that can be applied to personal finance. While I don’t remember his exact words, it boils down to this: Every moment is a choice.

There’s nothing unique about this idea. The concept has been used by motivational speakers, like Patch Adams and Wayne Dyer who focus on making conscious life choices, and by others who see this idea as a call to connect better with a supreme being of some sort. I am not a big fan of motivational speakers or preachers, so I carefully select concepts that have meaning to me, allowing myself to think independently. I dismissed the idea that sleeping through an alarm clock was a choice. I dismissed the idea that arriving at the office late due to a traffic jam was a choice. I didn’t even stop to consider that my financial condition, thousands of dollars in debt, was a choice.

It wasn’t until I was out of a job and had no place to live that I started to reconsider my approach to life. I’m forever grateful to my father, who helped me re-start my life from a better position with financial assistance, and to his long-term girlfriend, who allowed me to reside in her house while I changed the direction of my life. My time there gave me the opportunity to look at the choices I made, accept responsibility, and move forward with a new approach. I took the idea that every moment is a choice and applied that to my finances.

  • I started paying attention to my finances. There’s a moment in the film The Matrix where Neo, the main character, accepts that he is “The One” and finally sees the world around it for what it truly is. This is a powerful awakening. I saw that I was in control of my life, and in order for me to be in control of my finances, I needed to know where I stood and where I was going.
  • I made decisions that improved my financial condition. Recognizing that without a car, my options were limited, I found a job that was accessible by train. It wasn’t an ideal job, but I eventually made it my own. With income, I was able to save, and I moved out as soon as I could to avoid being a further burden on family.
  • I educated myself. I started reading more about managing money, particularly the Motley Fool discussion board that focused on living below your means. This eventually led to me creating Consumerism Commentary as a place to track my financial decisions — the choices I was making to improve my life.

When you don’t live as if every moment is a choice, you leave decision-making up to the world around you. You are subject to the whim of chance, and if the outcome isn’t what you’d like, there is always an excuse. There is always some way to blame your circumstances. Here are some of the excuses I’ve used to avert responsibility in the past:

  • “The road was closed due to a car accident.”
  • “I’m not feeling well today.”
  • “I didn’t know about this bill.”
  • “My car broke down.”

All of the above may have been true when I said it, but they are results of choices I made — the choice not to anticipate road closures or live closer to the destination, the choice to keep myself healthy, the choice to manage my finances and organize my bills, the choice to take care of my vehicle properly. Yes, sometimes there are forces beyond one’s control, but for the most part, the choices we make can make those external forces less relevant.

With this article, I have a choice. I could use my advice to deliver a direct motivational call for readers to take an active role in their lives my looking at every moment as a choice, or I could present the idea of every moment being a choice as a concept that worked well for me, and leaving the choice of whether to accept this approach up to the reader. I’m not a fan of motivational speakers, so I choose the latter.

This idea isn’t just about finances, it’s a philosophy that helps anyone become more involved in their life. Life is short, and taking ownership and responsibility adds to the reward you feel with each success and the drive to improve after every failure. It’s a life philosophy but it ties so well into personal finance. I wish I had come to this conclusion earlier in my life, but if my past experiences were to be any different than they are, I’d be a different person in some unknowable way today.

What’s the best financial advice you’ve ever received?

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What I Learned as a Financial Planner

by Neal Frankle

The following is a guest post from Neal Frankle, a Certified Financial Planner in Los Angeles who owns the financial blog Wealth Pilgrim. Neal has been a financial planner for the past twenty-seven years and is writing this article on Consumerism Commentary to share what he has learned from his experiences with clients over these ... Continue reading this article…

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Working With a Financial Adviser: Building Your Relationship

by Kathryn

This is a guest article from Kathryn. Kathryn has been working in the financial industry for 11 years. She is the founder and author of Kathryn’s Conversations, a money and lifestyle blog for people who like to get stuff done. This article continues the series covering working with financial planners and advisers. First dates are ... Continue reading this article…

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Working With a Financial Adviser: How to Show Up Prepared

by RJ Weiss

This is a guest article by RJ Weiss, one of the youngest Certified Financial Planners at the age of 26 and the founder of the blog Gen Y Wealth. You can download his free Financial Freedom Blueprint to create your own financial plan. RJ Weiss is contributing to Consumerism Commentary’s series on finding and working ... Continue reading this article…

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Working With Financial Planners and Advisers

by Luke Landes
Financial Blueprint

Over the past few weeks, I’ve been working on a series of articles about working with financial planners and advisers. The information about this aspect of the financial industry can be confusing, considering the variety of certifications, similar-sounding services, and hidden agendas. The first thing to consider is whether to work with a financial planner ... Continue reading this article…

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Working With a Financial Adviser: How to Prepare for the First Date

by Luke Landes

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals and described the common certifications to help readers start on the right track. I also wrote about selecting the right planner. When you’ve narrowed your choices to a few, you’re ready to start ... Continue reading this article…

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Working With a Financial Adviser: Selecting the Right Planner

by Luke Landes

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals and described the various professional certifications to help readers start on the right track. This article looks at the research you can do to narrow down your choices, getting you to your initial ... Continue reading this article…

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Working With a Financial Adviser: Demystifying Certifications

by Luke Landes

This is a series on finding, selecting, and working with financial advisers or planners. Recently, I evaluated the types of financial professionals to help readers start on the right track. This article looks at the varied professional designations and certifications. With a number of organizations granting different types of financial certifications, it’s easy to get ... Continue reading this article…

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Working With a Financial Adviser: Whom Do You Trust?

by Luke Landes

This is a new series on finding, selecting, and working with financial advisers and planners. A few days ago, a friend asked me on Twitter whether I had any articles on this topic. While I had a few old posts marginally related to financial advisory, I didn’t have anything in-depth. People consider working with financial ... Continue reading this article…

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Worry About Only What You Can Change

by Luke Landes

Two interesting articles caught my eye recently. First, on Get Rich Slowly, J.D. Roth asks when it is okay to judge someone else for their financial behaviors. J.D. describes his encounters with two friends — one friend more frugal than he is, who judges J.D.’s spending choices, and the other friend struggling financially, trying to ... Continue reading this article…

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How To Handle Requests For Financial Advice

by Luke Landes

I don’t have to remind myself that I’m not an expert when it comes to money. While my choices have improved over the past few years, I still make mistakes at about the same rate I always have. Even recently, I thought I could outsmart the public and take advantage of Toyota’s recent bad news. ... Continue reading this article…

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Don’t Tell Others How To Spend Their Money

by Outlaw

This is a guest article by Outlaw, who lives and works in New York’s financial district and writes on the blog Credit Card Outlaw. I don’t believe in conspiracies. A few weeks ago someone I vaguely knew from college forwarded me an email about how the World Trade Center was likely destroyed by government “beam ... Continue reading this article…

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Pay to Be a Financial Expert on Television

by Luke Landes

Last week, I had doubts about the advice provided by a so-called financial expert on the local prime-time network news program. Offering advice in public is a difficult task to do well. You have to appeal to your audience by suggesting solutions appropriate for the bulk of the listeners, a group that can vary in ... Continue reading this article…

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Dave Ramsey’s Baby Steps

by Luke Landes

I’ve done a good job of sharing my disdain for Dave Ramsey’s popularization of a method of getting out of debt that caters to unmotivated individuals, the “Debt Snowball” method. That doesn’t mean I don’t agree with his principles or his intentions. I just think he, as one of the most popular “gurus” in personal ... Continue reading this article…

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The Path to Mediocrity: Doing What Works For You and Other Self-Limiting Philosophies

by Luke Landes

General advice for an imaginary average person Personal finance advice comes in many forms, running the gamut from Dave Ramsey’s philosophies on getting out of debt to Suze Orman’s no-nonsense anti-stupidity spending advice. Opinions vary wildly as you stroll down the promenade from the broker, a salesperson, to the financial planner paid by the hour ... Continue reading this article…

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Can You Judge a Financial Adviser By Her Own Portfolio?

by Luke Landes

Consider a hypothetical popular financial adviser with $30 million in investable assets. Her (or his) primary clients may average $500,000 of liquid reserves ready to be directed in any manner as instructed. The typical advice these clients may receive likely involve investing mostly in equities through stock index funds. They have low expenses and are ... Continue reading this article…

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Is a CFP Certification Necessary When Choosing a Planner?

by Luke Landes

I like the new columns from Money Magazine featuring “The Mole,” an undercover financial planner. Like me, The Mole prefers to write anonymously to protect his or her identity. While my reasons for doing so pertain more with my desire to post sensitive personal information, The Mole maintains incognito status because he tends to speak ... Continue reading this article…

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