Financial Resolutions for the New Year!
As the calendar turns to each new year, inertia often trumps good intentions. Whether it means getting to the gym more often, putting the phone down during family dinners or reviewing your financial plan. Since I haven’t had a gym membership in a decade and my wife has laid down the law on cellphone use, I’ll write about getting one’s financial life in order, a topic with which I feel more comfortable.
I’ve been privileged to work with many extremely bright and successful clients. They work hard, enjoy their careers and hobbies and were extremely thoughtful at the time they made their important financial decisions, whether it was taking out a mortgage, investing for retirement, sending their kids to good schools or engaging me as their financial advisor! The only problem lies in the fact that the financial and investing worlds are dynamic places. Changes in tax laws, investment options and lower investment expenses can render once smart decisions less than optimal.
Perhaps you took out a great mortgage 10 years ago at 4.50% and reaped the benefits of fully deducting the interest on your taxes. With the new federal tax laws that limit state and local tax deduction to $10,000 in aggregate, you may now be taking the standard deduction rendering that interest deduction worthless. All the while, you are investing in CDs or bonds that are yielding next to nothing. I don’t discount the value of financial flexibility that a mortgage provides, but it may be worth revisiting the rationale used a decade or more ago to see if you can improve your situation.
Have you looked at your investment account statements recently? You are probably happy with the results and a decade long bull market makes everyone a good investment manager! But do you know what fees you are paying? If you have a contract with an advisor, you may recall what percentage of assets you are paying, but do you know what costs you are paying for commissions and expenses on the investments they recommend? As the late, great Jack Bogle of Vanguard stated, “in investing, you get what you don’t pay for” and the high expenses of some managers and investments can put a significant dent in your returns.
Do you own variable or fixed annuities? They sure sounded like a great deal as you may get an income stream for life, but those contracts are as incomprehensible for most as mapping the human genome. You need a doctorate in annuities to determine what you pay, with fees for every rider, early redemption charges, etc… I’ve seen many an IRA in an annuity, which makes little sense as the one advantage of an annuity is tax-deferral so what are you gaining by putting an already tax-deferred investment into this vehicle? Don’t even try to answer that one. Don’t fret or be ashamed if you do own an annuity. There are usually solutions to extract you from these products.
Very few people take the time each year to think about the issues that may be affecting their finances. That is where good, proactive, financial advisors who are fiduciaries earn their keep. I’m happy to have the flexibility to tell it like it is without having to worry about whether my advice is contrary to sales goals. I get satisfaction from doing the right thing by giving clients the advice they need. If you haven’t heard from your advisor recently, don’t like what you hear or don’t understand what you are paying for, maybe it’s time to give me a call.