Tag Archives: Savings Plans

When Should You Hire a Financial Planner

Old CoupleYour financial security is important.

To you. Your spouse. Your family.

But trusting a stranger with your hard-earned savings is challenging. How should you choose?

First, let’s ask when you should hire a financial planner? Your first job? Out of college. Once you saved a little nest egg?

There are five signs, according U.S. News & World Report, that you need a financial planner:

  1. Uncle Sam sends you a tax refund check every year,
  2. You already are investing your money, but you have no idea how much it is costing you annually,
  3. Everything is going great when the bulls are raging down Wall Street, but you don’t have the expertise or strategy to survive a bear market.
  4. You are saving money every year, but you don’t know if you are saving enough to meet your retirement goals.
  5. You have a spouse, four kids and two dogs, but you have never set up a plan to keep them financially safe should you die.

These are five good signs to spur you to investigate hiring a financial planner. In reality, once you are out in the workforce on your own, you should meet with a financial planner and set goals. The younger you are when you develop a financial plan the better you will be.

Take a 21-year-old who invests $2,000 for nine years at 10 percent interest. By age 65, that $18,000 will be worth $736,000. However, if you wait until age 30 to start saving $2,000 a year every year until age 65 ($70,000), you will only have $542,000.

You will lose $220,000 compared to starting at age 21.

That is the power of compound interest.

It is better to work with financial planner when you are young, but whatever age you are you should find one you trust with a good track record.

What separates financial planners from other financial planners? There are many different types, but which one is best for you:

  • Certified Financial Planners
  • Certified Public Accountants
  • Enrolled Agent
  • Chartered Life Underwriter (CLU) and Chartered Financial Consultant (ChFC)
  • Certified Fund Specialist (CFS) and Chartered Mutual Fund Counselor (CMFC)

You should begin with a Certified FInancial Planner who gave look at all your financial needs and develop a plan to meet them. CFPs  have the most rounded financial education plus they need to have at least three years of job experience in the financial planning industry before they take the CFP board exam which covers financial issues such as insurance, retirement, estate planning and investing. The CFP test is 10 hour.

If you need someone to do your taxes,  a CPA has more rigorous training, but an Enrolled Agent also can do the job and cost less. A Chartered Financial Analyst is good if you want to set up a hedge fund, but most people don’t go that rout.

The CLU and ChFC are good choices if you need life insurance, estate planning and other financial issues, but they don’t have to take rigorous board exams for their certification.

What separates us from other financial planners?.

Understanding the U.S. Stock Market

Buy high, sell low!

Words to live by if you are going to invest in the stock market. Of course, it is easier to preach this philosophy than it is to actually accomplish it.

One way to do this is to time the market. Know when to sell off at the peak and get back in at the valley. If you try this strategy, you will undoubtedly read articles about how if you miss the five highest days in the market you will be worse off than if you stayed in the market.

Has anyone really been able to time the market? I doubt it. Even if you find someone who warned that the bubble was going to pop, chances are five years later they blew the next call.

Did anyone really see the China bubble in August 2015? You would think there were warning signs. When I asked a stock broker if his company warned its clients to get out before the wild ride when the DOW dropped by more than 10 percent, the financial professional said: “We recommend to our clients that they stay in the market for the long haul.”

That is kind of a self-serving strategy because it absolves the financial broker from any responsibility when stocks nose dives.

I found an article in Barrons from February 2015 entitled, appropriately enough, “Considering the Stock Market Crash of 2016.”

John Kimelman was writing about Paul B. Farrell’s article, “Stock Market Crash of 2016: The Countdown Begins.”

Did Farrell get it wrong? The market crashed, but it was more of a major correction — more than 10 percent decline — than the 50 percent devastating crashes he warned that was coming in 2016.

Or is this just a prelude to Farrell being right. Are we going to relive the stock market implosion of 2008?

“Farrell writes that investors are in a state of denial about how bad things can get. But today’s investors aren’t behaving as bullishly as their counterparts in 2000 and 2007, two recent market tops. Also, it’s hard to imagine what catalyst may emerge in the next year that could be as terrible for stock values as the bursting of a tech bubble or a financial crisis brought about by an overinflated housing market,” according to Kimelman.

What are you to do then? Who do you listen to?

Kimelman suggests taking the approach preached by CNNMoney’s Matt Egan who writes about the “dangers of pulling money out of the stock market” if you think a crash will occur: “For example, people who invested $1,000 in the S&P 500 at the beginning of 2008 and again at the start [of] 2009 were back in positive territory by the end of 2009, according to a new analysis by financial technology firm CircleBlack.”

I faced that dilemma last when when my stock portfolio lost about $5,000 of its value. I had not pulled it out — I did not get the warning about China’s economic crisis. I have made the conscious decision to stay invested and wait for the market to grow again.

Probably a year or two from now the market will recover. If I can, I will invest more money in the market now while it is down and, perhaps, when it climbs back to 18,000+ I will  be ahead of the game.

I could use some help in make my financial decision because my options are limited.

Howard Gold, who wrote “What Should I do with My Money Now?” on MarketWatch.com, agrees.

“Bank deposits and money market funds are paying zero or even negative real returns. Yields on Treasuries are laughable and rates on investment-grade corporate bonds have plummeted, as have those of high-yield bonds.

“Commodities, except for agricultural-based ones, have languished. All the “alternative” asset classes that supposedly offer diversification — like real estate investment trusts — have moved up sharply with stocks. Gold and silver have underperformed boring old U.S. stocks for nearly the last year. So have once-torrid emerging markets.”

It is so confusing.

That is why as an individual investor you should not look for a financial Houdini, but you should take advantage of a certified financial planner who can explain all the options available.

The Wall Street Journal points out that a certified financial planner, who is not receiving commissions by pushing a product, can be of value to the individual investor.

“Financial planners can also help you remain disciplined about your financial strategies. They’ll make the moves for you or badger you until you make them yourself. Procrastination can cause all sorts of money problems or unrealized potential, so it pays to have someone riding you to stay on track.
“We’re not suggesting that you ignore personal finance and turn over all your concerns to an adviser. But even if you know the basics, it’s a comfort to know that you have someone keeping watch over your money.”