Are You Speculating or Gambling?

Kris & Tara by Captain Ron's Habitat

Has anyone taken their summer vacation yet?  Kris and I just got back from our scuba diving trip to Bonaire, the Dutch Antilles.  What a great trip!  We got to see turtles, loads of fish and coral, and special treat of spinner dolphins escorting our boat back to the dock. 

For anyone who hasn’t been diving you might imagine it is kinda scary.  It can be a scary sport but what makes it relaxing and fun is good preparation.  I can tell you I got my initial PADI certification in Saipan in 1998.  I didn’t dive for 10 years.  When I jumped back in the water without a refresher course I experienced my first panic attack ever.  I couldn’t remember how my equipment worked and the sensations of being back in the ocean were not exactly like I remembered.  So, I took a step back and relearned my basic skills.  Now, I love it again.  So my point is the best security comes from education and preparation.

I think the same principles apply to managing your finances.  Do you have a clear plan for investing?  How much research of the market do you do and how much do you research in a good advisor?  Do you have the time and inclination to become an expert?  

What sources to you rely on for your information?

I came across some great articles this month and I want to share with you this question:  Do you gamble, speculate, or invest your money?

Are you gambling, speculating, or investing your money?  Do you know the difference? Is it possible you could be speculating and/or gambling with your money, and calling it investing?  You bet it is. Although there are many definitions and disagreements as to what speculating and gambling are, there are some clear signs you are speculating and gambling with your money, versus investing it.

Gambling

Gambling probably brings to mind, visions of Atlantic City or Las Vegas with a spinning roulette wheel or a black jack table.  There are so many movies showing either math wizards out to count cards or the old gambler who can read any poker player’s tell.  These characters set out to win big and almost always walk away empty handed. 

Gamblers believe they can beat the odds and be the exception. Statistics prove otherwise.

What is so exciting about gambling? I think everyone knows of someone who has won some money playing the slot machines.  It was an exciting experience to win because deep down we all know that luck was at play—not skill.

Speculating

The speculator is thought to put some research into their decisions. They combine their data with some rational thought to take a calculated risk.  Speculators must accept a higher risk for a chance to receive a higher return.  The flip side is they are at risk of a greater loss. 

Are speculators comfortable with the risk of greater loss?  Or, are they blinded by the potential gain? Remember, the fine print on the back of every financial prospectus says past performance is not a reliable indicator of future performance.

Signs You Are Speculating or Gambling

 Here are the signs you are speculating or gambling with your money instead of investing it:

Emotional Response

If you are basing your investment decisions mainly on fear (the markets are going down!), or greed (the markets are going up!), you are not investing.

Office Gossip

If you are making investment decisions based on office conversation, or your brother-in-law’s recommendation, or anyone’s insistence that everyone’s doing it, you are not investing. By the time these types of conversations take place, chances are you are violating the cardinal rule of investing – buy low, sell high.

Listening to the Media

If you are getting your investment recommendations from magazines, TV, and the internet, I suggest you do a little due diligence before you invest – think Jim Cramer of CNBS’s Mad Money and his Bear Stearns recommendation.  Simply check out the performance of the investments these media outlets recommended a year ago.  Remember, no one can predict the future!

Stock Picking

If someone tells you they have superior knowledge of the financial markets and can pick the next hot stock winners, run. Studies have proven over and over that this is not the case.  Even so-called financial gurus have not been able to maintain their performance over long periods of time.

Market Timing

If you are jumping in and out of the your investments, thinking you can predict the ups and downs of the market for a better overall performance, think again.

What really happens is this – the markets go down; investors sell, and lock in their losses.  They then wait until the markets “look good” again, and jump back in.  Selling low, buying high – again very hazardous to your financial future.

Track Record Investing

If you are picking your investments based on the number of “stars” they have received from a financial ratings agency (star gazing), I’ll again remind you that past performance is not an indication of future results.

Healthy Investment Considerations

How does your advisor get paid?  Commissions and internal costs (such as trading costs) not readily visible to the investor. Ask the question.

How do your money managers choose stocks, bonds, or funds? There should be a clear process including research of company performance, cash flow review, and management.

Do you understand the investment philosophy?  In order to decide if you agree with the approach, you need to be able to understand how the process works.  If you cannot understand the investment approach, then it is probably not the best fit for you.  You hire an experienced advisor to manage the details but you need to understand the overarching concepts.

Also remember…

If you have questions and would like to learn a little more about me please visit my website www.taraenolan.com.

Cheers,

Tara J

www.taraenolan.com

How to Interview a Financial Advisor

This summer has been flying by for me—how about you?  I got to go a horse show this past weekend and finally rode my first third level test!  For anyone who doesn’t know what that means just tell me “Good Job, Tara.” 

Do you remember being a kid and in between playing with your friends sometimes imagining what your future would be like?  I used to spend a lot of time day dreaming about riding fancy show horses.  Well, I have arrived and am now living this dream.  I remind myself that my riding and pursuit of dressage is my passion.  It is one of my motivations for investing and creating the life I want to have. 

When you are creating your ideal life you need to have a supporting team around you.  You need your doctors, dentists, babysitters, your tax advisors and yes, financial education and possibly an advisor.  There are many experts available and the key is finding a person that is a good fit for you.  Your advisor should feel like someone you’re not only able to call but happy to call. 

Let me share some questions you should ask as you interview financial advisors.

Where Do I Begin

First, decide what help you need.  Then talk to family members, friends, your accountant, your lawyer.  Get some names.  And then the fun begins!  Do not assume since your brother-in-law or co-worker or BFF recommends a particular financial advisor, that person is a good fit for you.  You need to do your own due diligence to determine whether you want to work with someone.

Researching a Potential Advisor

Do they have a website?  Look for their SEC or FINRA registration information on the website.  You can also check out financial advisors by going to the Financial Industry Regulatory Authority website at www.finra.org, and click on Brokercheck.  It’s very easy, and you will find out all kinds of background information about the financial advisor - where they have worked, any complaints registered against them, and what licenses they hold for securities.   If they are a Registered Investment Advisor (RIA), you can go to the Securities and Exchange Commission website at www.sec.gov, and click on Check Out Brokers and Investment Advisors. 

Call Them for a Brief Interview

Talk to a potential financial advisor briefly on the telephone to determine whether you are the type of client they specialize in.  Do they have account minimums?  Do they work with people like you?  If they do, set an appointment to do an in-person interview with them.  Ask them if they will charge you for an initial consultation – most advisors will not.  And yes, I did mean to say interview – you are interviewing the financial advisor to see if this is a relationship you want. 

Meet in Person

Here is where your due diligence process comes in.  It is up to you to determine whether you want to work with this financial advisor.  Think about all the investigation we do when buying an appliance, or a car, or furniture for our home.  Get face to face with them, and ask every single question listed below!  In fact, print this questionnaire and take it with you to your meeting.  This is your financial future we are talking about, and you need to do the homework!

Questions You Need to Ask


     1.  Why are you a financial advisor?   This is not the most important question of   all, but it will help you determine if their focus aligns with your ideas of investing.

2.     What licenses and certifications do you hold?  There are many different licenses available that qualify advisors to offer specific services.  Ask them what licenses they hold and to explain briefly what they can and cannot do.  Make sure they are licensed to sell securities in your state, and if they have any special certifications that may be important in working with you.

3.     Who is your ideal client?  You want to know if they have experience with and enjoy working with people just like you!

4.     Are you a fiduciary?  A fiduciary is required to act with undivided loyalty to the client, disclose exactly how they are compensated, and disclose any possible conflict of interest in working with you.  You want this in your advisor. 

5.     How do you make your money?  Are you commission-based, fee-based, or a fee-only financial advisor?  Make the advisor tell you exactly how they are paid!  You want to know how subjective an advisor is, and if they could be influenced by compensation they could earn from an investment, or limited in what types of products they can offer.

6.     What is included, and what is not included in your fees?  Do they have different fees for different services, and what are those fees?

7.     Will you work with me personally, or will you pass me off to someone else in your firm?   If it is very important to you to work with this advisor only, you want to know this up front.

8.     Who will take care of me if something happens to you?  If this advisor gets run over by a bus tomorrow, who will take care of your investments?

9.     Where do you hold your securities?  Who is the custodian for your investments?  Have your advisor explain the role of a custodian to you.  Very important – hint, hint, Bernie Madoff!

10. How do you communicate with your clients, and how often?  How often will you receive statements on your investment?  How often does the advisor recommend you meet with them - quarterly, yearly, or more?  Does the financial advisor have other means of communicating with you on a regular basis - email, newsletters, and conference calls?  Tell the advisor what you expect to receive.

11.   Do you receive referral fees from attorneys, accountants, insurance agents, mortgage brokers, or any other 3rd party professional if you refer me as a client?  If they do, this is a big red flag.  Maybe the accountant is a good fit for you, or maybe they are referring you to them to make the referral fee. 

12.   Do you receive any incentives (financial or non-financial) for recommending specific investment products?  If they do receive incentives, be sure the product is right for you, and not just for the financial advisor earning a vacation or some other benefit to them.

13.   Finally, and most important, do you feel comfortable with this financial advisor?  Do you think you can trust them?  Do they talk down to you?  Can you feel secure trusting your financial future to this financial advisor?

There are no stupid questions.  There are many details and there is no way you should be expected to know all the answers.  Let me relate this to my previous flying experience.  Even though you’ve flown across the country on an airplane, you probably didn’t know how much fuel was required for the plane to make the trip.  This is an important detail for you to reach your destination but not one you need to know personally.  However, your pilot should be happy to answer this question for you and more, if you wanted to know! 

Also remember…

If you have questions and would like to learn a little more about me please visit my website www.taraenolan.com.

Cheers,

Tara J

www.taraenolan.com

Connecting Grandparents to their GrandKids and Why Would You Need Estate Planning?

I am so proud of my friends, Scott and Patricia. They are amazing people--creative, compassionate and innovative.

Scott and Patricia are family focused and launching a new company called GRANDCAMP ADVENTURES on November 10.  Through a mix of storybooks, backyard activities, games and music, Scott and Patricia have created a unique way for grandparents and grandchildren to form lasting memories and meaningful connections—or play their way to better relationships. 

I was surprised when Scott told me there are nearly 70 million grandparents in the United States and we all know how our families are scattered all over the country as well.  Patricia said they wanted to create interactive experiences to “create the space” to nurture and grow relationships between grandparents and their grandkids.  

Congratulations Scott and Patricia—you are proof that taking a great idea, turning it into a big goal and then figuring out how to turn the goal into reality can bring families together!

What goals have you set for yourself? How's your progress?

As long as we’re discussing families and goals, let’s talk a bit about Estate Planning. 

What is it?  Why would I need to do it?  What should I consider?

What is it?

Estate planning is essentially a process to think through and then set up legal arrangements to meet your specific wishes if "some-thing happens" to you or those you care about.  Good estate planning done with the guidance of a good estate planning attorney considers taxes, your desired health care treatment, and what happens to your stuff (business, insurance, investments, etc).  And though not fun to think about, it is best to do well before you would even think you need to do it.

Why would I need to do it? 

You should consider having an estate plan if:

·         You are the parent of minor children

·         You have property that you care about

·         You care about your health care treatment.

Think about details you handle on a regular basis.  If you weren’t around, is there someone else you would want to make decisions on your behalf.  If you have anything complex or if there are details only you handle, it would be very helpful to you family to have some directions and guidance.  I also recommend you talk with a friend who’s just handled the loss of an older family member and ask their advice.

What should I consider?

There are many aspects of your life to consider and this list includes a few.  If there is anything on this list you are not familiar with, then do some research, talk to an advisor, see what you need to take care of now while there’s no urgency.

1.      Estate tax planning - flexibility for changes in the law and value of assets

2.      Income tax planning – basis issues and retirement plans

3.      Coordination of asset ownership and beneficiary designation with estate plan

4.      Probate– Living Trusts, POD, TOD accounts

5.      Incapacity planning – Durable Powers of Attorney, Living Trusts, Health Care Powers of Attorney, HIPAA Authorizations

6.      End of life care – Advance Directives (Living Wills), DNR, MOST form

7.      Long-term care planning – insurance, Medicaid issues

8.      Insurance – life, long-term care, disability, umbrella liability

9.      Asset Protection – use of LLCs for rental property, avoid joint accounts, etc.

As you can see, an estate plan is more than just a set of forms.  It should be a comprehensive approach to dealing with certain or potential issues of death, disability, long-term care, tax liabilities, probate costs, and family disputes.  Not exactly cheery subjects, but certainly important and having a plan will let you sleep easier at night. 

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Requests for Topics

I will continue to provide investment tips and food for thought.  I am always open for topic requests and you can send your suggestions to tara@taraenolan.com.  

 Also remember…

If you have questions and would like to learn a little more about me please visit my website www.taraenolan.com.

Cheers,

6 Tips on Teaching Kids Responsibility with Money

I just got back from Hawaii where I’m serving my annual Air Force reserve time.  I was able to get into some exciting adventures during Memorial Day Weekend.  Kris came out and we went to a polo match on the North Shore, dove the Mahi wreck on the West Side, and hiked the Kuli’ou’ou Ridge overlooking both Diamond Head and Koko Crater. 

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I felt like I was on an adventure quest and it reminded me of my personal goal to organize a family vacation.  There are 6 of us plus spouses and kids so a plan is in the works to organize both the logistics and finances to make it happen.

Today’s Topic

6 Tips on Teaching Kids Responsibility with Money

The reason why I’m giving you these tips is that I’ve just gone through the exercise myself.  I am now an aunt to an 8 year old and a 2 year old.  I feel a great responsibility and see a great opportunity to start sharing my money smarts with them early on.  What a great opportunity to grow up understanding the language of finance and money.  It’s like learning a second language from the get go; instead of waiting until you’re ready to try and buy that first home!

6 Tips on Teaching Kids Responsibility with Money

Teaching kids about money is a great thing to do early on.  What an opportunity to get past the money issues we were raised with and show your kids that money is a tool to work for us.  It is way easier for your child to grasp planning and investing if they can work on a real scenario like saving up for that new bike they’ve had their eye on.  Here are 6 things you can do with your kids to help them start learning about money that they will not learn in school.

1.     

    Set Goals with Your Kid (needs, wants, wishes):  Sit down at the table with some paper and pencil and make three columns on the paper labeled Needs, Wants, Wishes.  Ask your kid to give you three examples for each column.  You can talk about the difference between dinner and a candy bar at the store.

2.     Create a Hand’s On Example: Find a toy that you kid has their eye on that costs $30.  Make change to include coins, dollar bills, 5’s and 10’s.  Have your child line up $30 using at least one of each type of money.  This will make a visual comparison of a desired toy to the money needed to buy the toy.  Then compare this dollar amount to an allowance or even a minimum wage job.  Let them tell you how long it will take to earn the money.

3.     Start a Savings Account:  Check with your local bank about setting up a savings account for your child.  When your child is old enough to understand multiplication and division— talk to them about compounding interest.                                        

Here is a simple example for comparison.

6% interest APR (annual percentage rate) beginning with $100.

(100 * 0.06) + 100 = $106.00

Versus

6% interest APR (annual percentage rate) compounded quarterly beginning with $10.

 1^st Qtr:  [($100.00 * 0.06)/4] + 100.00 = $101.50

 2^nd Qtr :[($101.50 * 0.06)/4] + 101.50 = $103.02

  3^rd Qtr:  [($103.02 *0.06)/4] +103.59 = $104.57

4^th Qtr:  [($104.57 * 0.06)/4] + 104.57 = $106.14

4.     Give an Allowance:  Make a deal to show you child how investing now will reap dividends later.  Give your child two options to pick from and help them through the decision-making process.  For the first option, offer them $3 dollars a month and they will have $3 a month to spend.  For the second option, offer them $5 a month if they put $2.50 into their savings account.  They will have $2.50 to spend each month.  Stipulate that they cannot spend the savings account money for 6 months.  After 6 months of investing they will have $15 and it will only cost them 50 cents a month.

5.     Discuss Credit Cards:  Talk about good ways to use credit cards i.e. to build a good credit history and then pay off each month versus bad ways buying such as for instant gratification.  Also discuss how different credit cards have different interest rates.  Have your child pick which card would be the best card to use for a larger purchase like a refrigerator that you may take a few months to pay off.

6.     Keep Records: Buy an organizational folder with 12 months.  Have your child put receipts of purchases into the folder each month.  When you are paying bills have your child tally up their spending.  Ask them if they are still happy with their purchases or if they would make different choices now.  This will help them further understand wants versus wishes.

Be sure to talk to your kids about money so their knowledge comes from you and not what they’ve learned from the kid down the street.  I think you’ll be surprised how much they already understand—I know I was when I talked with my niece!

Also remember…

Make sure you’ve made your appointments for your annual financial plan review.  And, if you’re not already working with me, feel free to make an appointment for an initial free consultation.

If you have questions and would like to learn a little more about me please visit my website www.taraenolan.com.

Cheers,

Tara J

www.taraenolan.com