Investing

Free Financial Mentoring: Savvy Ladies

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Free financial mentoring from Savvy Ladies

Savvy Ladies is a not-for-profit organization formed to provide free financial mentoring to women.

How does it do this?

An army of volunteers, to start. Any woman can sign up for a pro bono 1 hour mentoring consultation with a Certified Financial Planner™ on a wide variety of topics. Volunteers have also written blog posts and recorded webinars on specialized topics. All are available on the organization’s website, https://www.savvyladies.org.

What kind of topics?

Cash flow, investing, divorce, widowhood, caregiving, budgeting, debt, college, careers and more.

Who does Savvy Ladies serve?

Any woman of any background who has a question about money. Founder Stacy Francis recognized that, as women, we are more often in-the-dark about money issues than men. Many women have no one to talk to about it. Savvy Ladies creates a safe place where those questions can be asked and answered.

What is its goal?

More self-reliant, financially educated women. In psychological terms, “financial self-efficacy.” Having self-efficacy means feeling confident and resourceful enough to handle a problem or question. Note this does not mean having or knowing all the answers. It means having the confidence to know where you might find the answers, and that you will be successful.

Who are the volunteers?

The website features several of the many volunteer professionals. Recently as a volunteer I have spoken with women as far away as Colorado and as close as my home state of Florida.

What’s the catch?

No catch. Volunteer professionals do not solicit for business. After the one hour consultation, the recipient fills out a survey asking how well their question was answered. The volunteer also fills out a survey asking how well they thought the consultation went.

Importantly, Savvy Ladies has received the GuideStar Seal of Transparency. Not all charities are what they appear. For more information on checking up on charities, see: https://www.hollydonaldsonfinancialplanner.com/charities-and-giving/.

Want to see more ladies get financially savvy?

If so, here are a few ways you can help.

Donate or Sponsor. Savvy Ladies relies on donations and sponsorships to keep the website, small staff, and operation running smoothly.

Refer. Refer a woman you know to the free financial helpline for a consultation. Or, refer a financial professional you know to volunteer.

Volunteer. If you are a financial professional, apply to be a Savvy Ladies volunteer. It’s up to you how much time you spend. Of course, men are welcome, too!

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Guest Rap Song Post: It Won’t Go To Zero

Guest rap song post: It Won’t Go To Zero. In early 2010, Ken Robinson, JD and Certified Financial Planner in Ohio, produced a funny rap video with a serious educational message: “It Won’t Go to Zero.” Whenever markets start back on their once-in-a-while roller coaster ride, it’s a good time to resurrect Ken’s lyrics and rap-star antics. Thank you Ken!

In 2007, the stock market began falling and didn’t hit bottom until 2009. Although it recovered throughout 2009 and 2010, it took several months to 2 years for the investing public to actually believe it. Who could blame them after the traumatic crash – a 50% drop in the S&P 500 – in the fall of 2008? Ken’s video in early 2010 occurred during a recovery many didn’t yet recognize.

During those couple of years, people and pundits asked, “Is this time different?” “Will it ever come back?” “Is this the New Normal?” “What if it goes to zero?” In times like these, it is usually confusing and difficult to separate reality-based facts from emotional actions.

Get to the Chorus

The chorus of Ken’s song goes,

“The markets are resilient, and although they may bend, they won’t break, the stock downturn will come to an end. I can’t say what might finally make things turn around, but eventually we will get back on solid ground. I’m not here to be some investment hero, I’m just letting you know; the markets won’t go to zero.”

The lyrics are just as relevant today, in a different decade, under a different New Normal. I wouldn’t change a thing he’s saying. In fact, yesterday I had nearly this exact conversation. I just wish I’d had the talent to say it in a rap song.

Check it out: https://www.youtube.com/watch?v=C3GtxtWSZxE

Choose Composure

Ken’s message is to keep our composure. After a recent NBA playoff win over the Memphis Grizzlies, Steph Curry of the Golden State Warriors was asked by the reporter, “You were down 13 points. How did your team come back to win?”

His answer: “Composure.”

Fortunately for the Warriors they did not have pundits on the sidelines screaming, “You’re finished!” “A comeback is impossible!” “This time it’s different!” Unfortunately for the investing public, scary messages are way too available on nearly any media source we choose. And the primitive part of our brains is hard-wired to look for danger, whether or not it might truly exist.

Choose media messages wisely. When things get scary, no matter what you are hearing and reading, choose composure.

For more on the ways our brains mix up our money messages, see chapters 6 and 7 of The Mindful Money Mentality: How to Find Balance in Your Financial Future, or any of the books on our Recommendations page.

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Give Yourself a Break With Your Money History

When I was interviewing for my first job out of college, one of the vice presidents who interviewed me was Joy Turner. A woman on the move in her 30s, Joy seemed highly respected by her peers at the bank. She had a calm demeanor, and while reviewing my resume’, she noted my GPA was 3.2. Immediately assuming she disapproved, I blurted out, “Yes, I could have done better.” Her expression softened as she supportively responded, “Well, 3.2 is not bad, and considering you went to Davidson, don’t you think it’s actually pretty good? We don’t always want people with perfect 4.0’s.” I exhaled, relieved. I got the job, and later she became one of my favorite mentors.

No matter how good the financial statements look, many people I have met come in and say, “Yes, but, I could have done better.” When I ask, “Why do you think so?” the three most common reasons I hear are something like:

“I panicked and sold everything in 2008.”
“I trusted that financial person before I did my homework on them.”
“I haven’t paid enough attention to this stuff.”

I understand where they are coming from. It’s common to think we can always do better. I am just as bad at looking at my mistakes, my humanness, and blaming myself for not being “better,” as the next person.

But over time I have learned to reframe the question. Rather than play the “What if I hadn’t made that mistake” game, I can take inventory of many things I have done right that have led me to the life I have today. Why waste time inventing a future that never happened, where I had a 4.0, got a different job, or didn’t buy Enron in 1999? All you can do is resolve to be better and make better choices, now that you know the difference. Why not be glad that now you know the difference?

I am guessing Joy Turner thought someone who had learned that lesson, and was ok with it, would make better decisions in the long run. Try treating yourself the same way, and see if you don’t make better decisions, too.

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The Slippery Slope of Rationalization

At a financial planners’ conference I attended last week, a dinner conversation turned to the seedy side of the industry. Namely, we were discussing the bad apples who spoil the whole bunch: those who steal their clients’ money. Ask anyone with experience in defending or prosecuting these liars, and almost to a person they will say the culprit “thought” they were acting in their clients’ best interests, or at least started out that way. Criminals such as Al Capone reputedly have said they intended to do what was best for those they had murdered, by putting them out of their misery.

In the financial world, a bad guy or gal typically crosses the line after they get in a bind with a promise or debt they cannot fulfill. They intend to “borrow” client funds, sometimes without telling them, and sometimes by offering an “investment” in a related entity which pays an attractive, but usually not exorbitant, return. They “intend” to pay it back as soon as all the chips fall back in line. But the Peter-robbing to pay Paul has begun, and as complication grows to cover the lies and promises, a Ponzi scheme is born.

Perhaps these headline-grabbers attract our attention because there is something about rationalization that strikes close to home. Maybe we rationalize a behavior that doesn’t hurt anyone but ourselves, or maybe, over time, it is the kind that rocks a relationship to its core. The clients of the criminals often state they thought their best interests were being served. They trusted the words they heard. Delivered with sincerity, they read the right intent into them. Perhaps because what was said was what they wanted to hear, they did not question whether the actions were matching the words.

Maybe we have been on the receiving end of a rationalIzation that sounded good, and chose to ignore that inner voice that told us to second guess. This is its own form of rationalization, too. Both parties want to ride the denial carousel, because getting on or off involves short-term pain or conflict. That foregone pain, though, simply compounds, whether financially, like interest on too much debt, physically, like ill health practices, or emotionally, like small slights leading to anxiety, depression, or anger. The longer we live in deferral and denial, the greater the imminent pain, and the harder it is to stop.

Only those with courage will stop the rationalization before it begins, and stand up to their own consequences. It takes similar courage to call the duplicity on the carpet the moment the inner voice discovers it and whispers in our ear. If you ever find yourself on one end or the other, remember, the degree of pain to call it, and change now, may pale in comparison to the pain you will save yourself later.

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The Painting Gene

I did not get a painting gene.  By painting, I do not mean the artistic kind, requiring creative talent and the ability to synthesize the world as you see it into a one-of-a-kind colorful expression.  I don’t have talent even close to that. No, I mean the kind of painting you use on a wall in your home.  One color, applied with a roller and brush. How can I manage to make a simple task so hard?  I discovered the answer this week.  My financial gene usurped my painting gene.  This means I am genetically incapable of putting enough paint on the apparatus, whichever it is.  Unconsciously and automatically, I want to use as little paint as possible so I do not have to buy more.

Experienced paint-people know this is a disaster waiting to happen.  When you do not use enough paint, your wall becomes a collage of streaks and stripes of varying shades and shapes, instead of an uneventful homogenous surface. To fix it you practically have to call in a professional.

Thank goodness I was not painting a wall.  I was only priming our subfloor to prepare for carpet.  My husband of 25 years knows better than to put a roller in my hand to paint anything other than something that will be covered up shortly.  He got the painting gene.

So we both know (after some trial and error) where I am at my weakest.  But that does not mean my financial gene does not serve me well in other venues.  The trick has been figuring out when to let it do its thing, and when it needs a leash.

With all of our money habits and attitudes, in fact, there are times when they contribute to our success, and times when they hinder us.  Before we recognize that difference, we risk painting a financial collage like my subfloor –  varying streaks, stripes, shapes, and shades.  Instead, rather, a financial picture could be an uneventful backdrop to simply living a life.

Sometimes it is hard work to discover and admit when we are getting in our own way, but my husband and I have learned that once you map your “talent” genes, you require fewer professionals to fix the mess you made.  It costs less overall, and you stay married longer.

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Wild Promises and Pixie Dust

A reader wrote to me this month, aggravated at some TV ads.  In her market, (South Carolina), a large financial company is running ads depicting people who made bad choices (didn’t save for kids’ college, didn’t plan for retirement)  With a soft Southern preacher accent, the advertiser is telling them to come in and sit down with their advisers.  Her impression from the ad is that the message is, “It’s ok you’ve made bad choices for the last 20 years.  Just y’all c’mon in and we’ll fix it for you.”  She called this message, “Pixie dust.”

I can’t discuss any specific financial company’s product in my newsletter without crossing the regulatory line, but she is right to be suspicious.

I can make my readers aware that, as human beings, we tend to value certainty over uncertainty. A lot.  The financial industry knows this.  Most human beings will overpay, or accept a lesser return or other tradeoff, for a product that appears to have some kind of guarantee.

We value this so much that we tend to overlook it if the guarantee has conditions, or loopholes, or possible higher costs down the road.  As long as the person informing us about it appears to be trustworthy and competent, we hear “guarantee” and (neuroscientists have shown this) a primitive part of our brains says, “YES! SIGN ME UP.”

Pay attention to which part of your brain is doing the listening.

1.  Ask to see the contract and the fine print.  If you don’t want to review it, find someone who enjoys that kind of reading.  (Hint:  I’ve been reading prospectuses and contracts for over 20 years and I love it.  The thicker, the better.)

2. Ask the nice, trustworthy, competent person how much they will make if you buy.

3. Ask what alternatives he or she considered before recommending this one.

4. Ask what could go wrong.

5. Ask what would be involved if you want out.

6. Ask at least one other adviser about the same product, preferably an adviser that will not make a commission on selling it to you.

Once you have your answers, then let the rational part of your brain make the decision.

College and retirement funding are ambitious goals that can be achieved in many cases, with time, ongoing financial education, informed decisionmaking, and a financial plan crafted with the family’s best interests in mind.

Perhaps that’s exactly what the advertiser is selling.

Then geez, why did they have to make it sound like pixie dust?

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Helping Grandma Avoid Shady Money Managers

Know anyone who might be a potential victim of incompetent, unethical or illegal financial planning practices?

Many people, especially the elderly, turn to financial advisors to guide them to the best choices for their financial situations. Not all of these professionals, however, really have the client’s best interests in mind. The Federal Citizen Information Center, run by the federal government, recently added this CFP Board publication, Consumer Guide to Financial Self-Defense, to its catalog.

Learn to recognize the unscrupulous ones and protect yourself, friends, and family from their pitches.  The catalog can be found at: http://www.pueblo.gsa.gov.

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Picking the Right Horse

Every year, financial magazines and newspapers come out with a “Best Mutual Funds” issue. They pick which ones have the best 1, 5, and 10 year track records. They print flattering reports on the fund managers and their philosophies. For once, then, I was surprised to see Fortune magazine, in December 2009, went back and analyzed what percentage of actively managed funds actually beat their assigned index. In other words, what percentage of the time would investors have been better off by just buying an index fund instead of picking one of those profiled in the magazines? A recap of the results, compiled by S&P:

For Large Cap (index is S&P 500): 37%
For Small Cap (index is S&P Small Cap 600): 32%
For Foreign Stock (index is S&P 700): 13%
For Int. Term Bonds (index is Barclays Interm Gov/Credit): 20%

In other words, somewhere between 13% and 37% of managers accomplish the mission of beating their assigned index. This data was compiled over a 5-year period. Academic studies that look at rolling 5-year periods find that the managers who fit in that 13% – 37% category changes. In other words, for a particular 5-year period, most managers who “rise to the top,” were at the bottom in some 5-year period prior to that point. So, the trick then becomes, picking the right “horse,” at the right time, and staying on it for exactly the right ride. For more information and data on how difficult this can be, see Stuart Lucas’s book on “Wealth,” or Burton Malkiel’s “Random Walk Down Wall Street.”

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Link to “The Hidden Costs of Mutual Funds”

http://online.wsj.com/article/SB10001424052748703382904575059690954870722.html?mod=WSJ_hpp_MIDDLENexttoWhatsNewsSecond

Thanks to a loyal reader for suggesting this article by Anna Prior of the Wall St. Journal.

My friend, colleague, and prolific writer, Ron Rhoades, J.D., published an extensive white paper on this topic.  If you’re a fine-print kind of person looking for the down-and-dirty academic analysis (55 pages worth), he’s the guy.  You can access it at:  http://www.josephcapital.com/Resources.html.  Scroll down to “White Papers” and download “Estimating the Total Costs of Stock Mutual Funds.”  Or, you can request it by emailing info@josephcapital.com.

Continue ReadingLink to “The Hidden Costs of Mutual Funds”