Tag Archives: #cfp

Back To School…

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Do you have a college student headed back to school, or going for the first time?  If so, this might apply to you.

Most people know that their aging parents should have a few documents as part of their Personal Financial Planning.  A Health Care Proxy, which allows someone to make medical decisions for them if they become incapacitated and they can’t.  A HIPAA Authorization, which would allow a medical practitioner to discuss their care with someone else.  A Durable Power of Attorney, which would allow someone else to handle financial and business affairs on their behalf if they are unable to, or wish someone else to do it on their behalf.

Aging parents often appoint one or more kids to do this so the powers are there in case they are needed or wanted.  What about College Students, or Young Adults?

You may not have thought about this, but when your child turned 18, you lost most of the legal power you held from the time they were born.  You no longer automatically have the power to make legal, financial or medical decisions on their behalf. 

Your child may be hundreds or thousands of miles from home.  While some of the aging parent fears, such as strokes, dementia, falls, etc. don’t apply much with young adults, things do happen.  We don’t want to think about it, college students sometimes get in serious accidents, or legal trouble.  When they do, they may not be in a position to make or execute decisions for themselves. 

Having these documents and the powers they grant to you can be priceless in a crisis situation, saving critical time or even avoiding a judge making a decision.

These documents are fairly standardized, and although they can vary from state to state, they can be modified and adapted to meet your needs.  If your child is attending school in another state, most states will accept documents properly executed in their home state, but you might want to inquire.

It’s a simple process to execute these.  Most attorneys will handle this for a nominal fee.  There are self- serve template documents as well, but a mistake could be a problem when you really need them.  Your child must agree to granting these powers to you. 

If you have a child on the fence, it might be helpful to let them know that they can rescind these powers at any time.  It’s also a good opportunity to push them further into the adult world.

The Bottom Line:  Welcome to the real world.

–Michael Ross, CFP®

Pop Goes The Power Supply…

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Every now and then, an infrequent purchase comes up.  This week a power supply on one of our desktop computers died with a big popping noise.  It’s an easy swap, 4 screws and a couple of snap connecters – a less than 10 minute process.  I ordered one at the end of the day and it arrived at lunchtime the next day.

The new one cost $31.99.  In my head that was considerably more than the last one we had purchased.  I was right.  The last time we purchased one, it was $24.99 in January 2019.  That’s an increase of 28% in 4.5 years.  The first two of those years were in a lower inflation period.  It works out to an average annual increase of 5.6% – likely much more since 2021 started.  This is a commodity item that hasn’t changed (same wattage, and certainly no new patents apply). 

Purchases like this make it clear that inflation is running hotter than the official statistics the government puts in front of us.  It seems clear that for the foreseeable future, we are going to have to adjust to the new normal.  This is a reminder to adjust inflation assumptions in your Financial Planning.

The Bottom Line:  Incorporate the real world in your Financial Planning.

–Michael Ross, CFP®

Beware A Banker Bearing Gifts…

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The other day, I got a glossy advertisement in the mail.  It was from a local bank that was offering me a “Premier Relationship.”  If I deposited $500K or more into a Premier Checking Account by May 21st, and kept the money there for at least 90 days, I would get a bonus of $3,500.

It sounds good so far.  They also promised waive a monthly $35 fee (which sounds steep to me), give me no ATM fees, and 24/7 phone support.  I read the fine print, got my pencil and a calculator out, and started working the numbers.

The actual interest on the account is 0.01% APY – yes you read that right.  The $3,500 bonus is only 0.7% simple interest if I kept the money there 90 days or more.  So on an annualized basis (assuming I could get future bonuses), the compounded interest rate would be under 3%.

For comparison, a 90 day T Bill will currently yield an annualized rate of over 5.3%, and that’s state income tax free (if you are in one of those states that imposes such a tax).  Amazingly, I bet there are people that are flocking to take advantage of this.  Don’t be one of them!

This is another great reason to have a competent Financial Planner who won’t let you make mistakes like this.

The Bottom Line:  This is an offer you can refuse. 

–Michael Ross, CFP®

There’s A New Fry Guy In Town…

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For quite some time, I have been pontificating two things – well, OK more than two things, but these two came together for me today. 

I believe that investing in non-publicly traded startup and early stage companies offers the potential for returns that can dwarf the returns one can reasonably expect by investing in public companies.  There are many reasons for this, but the reality is, by the time the company goes public, via an IPO, the new investors are buying out the earlier funders and founders.  In other words they are selling to you.  What does that tell you?  These investments come with a much higher risk – requiring much more homework and verification, and statistically the failure rate is higher.  It’s an arena where nobody (except maybe founders) should put all their eggs in one basket.  However, all it takes is one real home run and the duds are long forgotten. 

Besides the higher risk, there is an additional caveat.  Most people cannot legally invest in them.  According to the SEC, you must be “accredited”.   You don’t have to pass a test, just have a high level of income and/or assets.  In other words the rich get richer.

I have also been a fan of AI Robotics.  AI is promising us the moon.  Most of it on a practical basis is still a bunch of hype and truly useful applications to date are far and few between.  I guess if you have a HS term paper due tomorrow, it could be helpful.  The ability to produce smart robots is one of the areas that hold short term economic promise.  A robot that can efficiently do complex non repetitive tasks in a varying environment has real value.  Most of the companies developing and producing these are relative cottage industries.

Today I stumbled across a company called Nala Robotics.  I did some digging.  They are based in Illinois and make a series of fast food kitchen robots.  You can see for yourself here; www.nalarobotics.com  The videos on their site are really cool.  I could only find information on one round of funding for $1.9 million, although I suspect there must have been more than that.

It’s hard to cull information on small closely held companies without really digging.  Since, I am not doing this on behalf of a client, I did a quick search.  Pricing info was vague, but they offer one of their products “The Wingman”, a robotic fryolator for rent at $2,999 per month.  If you do the math, that’s less than what it would cost in salary, taxes, benefits, and workman’s comp for one month of a $15/hr. minimum wage fry guy being available for all the hours a location is open.  I would guess there are other efficiencies.  No sick days. The ability to react instantly to demand as food is being ordered.  It even automatically cleans itself.

It’s hard to tell if Nala will be the grand slam home run in this field.  I would guess the makers of these machines that get the order from McDonalds and the other biggies will go to the head of the class.  It does seem that we are on the precipice of an explosion in this genre and many other AI robots.

This is clearly happening.  Stay tuned.

The Bottom Line:  Rosie Meets Edison

Choice Is Great…

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A few years ago, I went to a social event at a friend’s house.  At the time he was employed in a tech sales position at one of the major tech firms.  I noticed all kinds of wires and devices connected to his TV in the living room. 

When I inquired he proceeded to tell me he had “cut the cord” from the cable company, and was able to replicate the service for a lower price.  He proceeded to show me, a digital antenna to get broadcast channels, a DVR to record programs, and some sort of router that made all of this available to all the TV’s throughout the house.

It all seemed so complex at the time, but he was one of those guys who could make it work and troubleshoot when necessary.  I do remember his savings were notable however.  It seemed cool, but at the time it was a tech mountain I wasn’t ready to climb.

Cutting the cord has become more of a thing in recent years.  Some of it was the young people who had no interest in linear TV, and were happy with Netflix and chill.  Others got tired of subsidizing hundreds of channels they mostly didn’t watch, especially expensive local and national sports channels which were must carry on basic cable and added notable cost to the monthly bill.  Who do you think pays for the multi-million dollar salaries of the players on the local NBA team?

In recent years I had watched the cost of my cable bill increase notably, probably a good 75 percent since the pandemic started.  Recently, the cable company instituted data caps on my internet service.  This meant I could buy up to a higher service level month in and month out, or pay an even higher penalty fee in months I pierced the cap.  Something had to give.

I started to dig.  First I found a few streaming services that were able to deliver the channels we most watched and the local ones (no antenna needed) on any TV in the house without the need for additional equipment rental, for a stunningly lower price.  That sounded great, but I looked into the cost of internet service only from the cable company and it seemed they had you. 

Or did they?  The old traditional phone company did not offer fiber optic service where I live.  Their DSL offering just won’t cut it in the 21st century.  I thought I was screwed.  But then I came across an ad for one of the cell phone carriers offering 5G service for the home.  I learned for that to work well, you need to be somewhat near the tower – 5G has limited range, and that tower can’t be oversubscribed.  They offered a free trial, so I took them up on it.  I ended up with great service and speed.

Now I have cut the cord.  I have everything I want for about half the price.  There is a lesson here.  Competition works for the consumer.  As long as we don’t allow monopolies, the invisible hand of economics works.

If you haven’t cut the cord, you might want to check it out.  Just don’t sign up for my tower.

The Bottom Line:  Believe in and take advantage of free markets.

–Michael Ross, CFP®

Just Give Me The Best Deal…

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Hotel entrance sign

When I relocated my business to Florida in 2014, I kept a small office in New York to service my NY clients.  Up until that point, I had never done much business travel – just a conference here and there.  Once I was based in Florida, there was a need for me to travel to New York from time to time to see clients located there.

I made it a point to book my hotel stays using Hotels.com.  They were easy to use and they offered a 10% rewards program.  For every 10 nights I booked, I got a rewards voucher for a free night at the average room cost for the 10 nights.  Over the years, I had accumulated 6 nights – I would imagine the value of the vouchers was over $1,000.  As a bonus the vouchers would be tax free.

When the pandemic hit, like most people I stopped traveling to New York.  With the rise in the acceptance of Zoom, I decided to close our New York office and meet with those clients via conference call. I would only travel up to in person meetings in the most necessary or critical situations.  As you might expect, my hotels.com bookings plummeted.

In the back of my mind, I always intended to use my 6 vouchers.  This week I decided to check on their value, and incorporate that into a potential family trip in March.  When I logged on, I learned the previous rewards program had been terminated and rolled into a new program with Expedia (a sister company) and some Airbnb clone they are associated with.  Much to my dismay, I had about $25 in the kitty.  I recall no notice of this change being sent out.  It’s important to remember that these companies don’t exist primarily to make their customers happy.  They exist to reward their shareholders.

It’s not worth getting angry.  I am sure buried in the fine print their lawyers had written rules that allowed them to do this.  The airlines are infamous for doing this also.  There is a lesson here…

Cash on the barrel!  Find the best deal and don’t worry about non vested rebates.  Under these circumstances I would have been better off using sites like Priceline and Hotwire and gotten a slightly better deal on the rooms I booked.  Going forward I will not make purchase decisions based on points, miles or vouchers.  Just give me the best deal.

The Bottom Line:  Learn From My Mistakes.

–Michael Ross, CFP®

Buy Low, Sell High…

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An investment makes sense only if you see a return – either the value increases and/or it produces income of some type.

Most investments have a sponsor, syndicate or other entity that has a stake in you investing in it now.

Years ago, when traditional open ended mutual funds were more popular, the sponsor at many professional dinners I would attend was invariably a wholesale sales representative for one of them.  In exchange for paying a fee, they would get a few minutes to address the group.  Without exception, they would cite a study done by Dalbar that said if you missed the 10 best daily market increases every year, your return over time would be much less than if you were always invested.  The implication was that nobody knew when those days would be or if something was overvalued in the market, and we should always be fully invested – in their fund, of course.

When I would ask what the return would be if we missed the 10 worst days of the year, they would reply that they didn’t have that information and would get back to me.  They never did.

I continue to see that thinking all the time from the investment sales side.  It doesn’t matter what the investment is, to them there is never a bad time to invest in whatever they are pushing.  That’s how they get paid. 

In many cases, the sales squad did not live or work through a bad market or economic cycle.  In other words, they weren’t born yet when inflation was even higher than the last few years, interest rates exceeded 15%, or the stock market crashed in 1987 and melted down again in 2001.  Often, they weren’t adults when the real estate market collapsed in 2009.  They say “that won’t happen again”, and “it’s different this time.”  That’s how they get paid.

Today, I see real estate syndicators acting as if prices and rents always go up.  They don’t.  I see stock analysts telling us that any company associated with “AI” is a good bet.  I heard that with “dot com”, and it wasn’t true.  Every situation is unique.

I am not making a blanket statement that the sky is falling.  My point is that there are always risks, and at different times and in different situations certain investments do not warrant your capital when evaluated on a risk return basis.  My job is to make sure my clients make smart investments that work for them.  Not to pay the sales squad.  That’s why I get paid.

The Bottom Line:  Filter the sales noise to invest successfully. 

–Michael Ross, CFP®

George Washington Had It Right…

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Lying to a client or prospect is never good in business, but it’s an especially bad way to start a relationship.  I received an email today from “Victoria Lopez” at “Growth Titan”.  The subject said:  “Michael, just pinged your Linkedin”.  It opens with “I messaged you on Linkedin to arrange a call, but thought this might be better”.  Of course I received no such message or connection request in LinkedIn.

Victoria is in the lead generation business.  I am inundated on a daily basis with pitches from firms that want to set up appointments for me with prospective clients.  It’s not a service I am interested in.  I guess Victoria is just trying to get everyone’s attention.  Unusually for me, I did open her email.

Once I realized she opened with a lie, I had no interest in anything she had to say.  Even if she was selling something I needed or wanted, how could I trust her?  Would you?  It’s also an industry that doesn’t have the best reputation.  Stories of the same lead being sold to multiple customers are common and many are not screened for whether they are a match to what the person or firm on the other side of the desk does or the type of clients they work with.  In other words, bad apples give the industry a bad rap.

This got me thinking about my own profession.  In the broadest “big-tent” category of “financial services”, there is a well deserved lack of trust.  There are squadrons of sales reps pushing all types of financial products and services.  Most are held to a suitability standard – meaning the product or service has to be something that you might need or benefit from.  Consumers end up with purchases that have little value to them, cost too much, and are far from the best solution to their problem, to name a few shortcomings.  They often get the “this is the greatest thing since sliced bread” sales pitch and a stack of legalese disclosures that they don’t understand and hence usually don’t read.  Any questions they do ask are often glossed over.  Bad apples again give everyone a bad reputation.

My space in the tent is very different.  As a Financial Planner and Wealth Manager I work differently.  Federal and State regulations, as well as those of the CFP Board of Standards who issued my certification as a CFP®, require me to work as a Fiduciary.  It is the highest standard in dealing with my clients.  If you are not familiar with the Fiduciary Standard – you can read more here: http://www.financialconnectioninc.com/fiduciary-standard 

I realize my most important value to my clients is my fiduciary duty – an unwavering dedication to putting their needs and interests first in all cases.  In a world full of sharks, I will always be their lifeboat.

The Bottom Line:  There is always room in my lifeboat.

–Michael Ross, CFP®

Don’t Assume…

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When I was in High School, my health teacher (and lacrosse coach) once wrote the word Assume on the blackboard.  He said “when you assume, you make an Ass out of U and Me”, as he separately underlined the three parts of the word.  You could have heard a pin drop – even in a class where we had watched a film of a baby being born.  Teachers didn’t say Ass back then – at least not in class, although on the lacrosse field his language was frequently a bit more colorful.

Once we all got over the shock, I realized there was wisdom on the blackboard.  What he was really trying to convey is Knowledge Is Power.  However, I doubt if he had written that on the board, I would remember it decades later.  I also now realize if he had trademarked the U as a synonym for You, he would have made a killing when texting was ultimately invented.

It involves getting a verification confirmation via snail mail, so it can take a few weeks.  However, once you are registered you can log on and get your info any time, which you should do annually, even if just to check the accuracy of their records.  It’s important to know where you stand and incorporate reality into your planning.

I am sharing this wisdom to emphasize the importance of knowing the facts of where you stand financially.  This is a cornerstone of the Financial Planning process.

One assumption many of our clients and friends often make is what their Social Security benefit will be when they begin to collect.  While claiming strategy is often a complex decision, your estimated benefits should not be a guess.  An inaccurate assumption here can really harm your retirement plan.  It’s information we will collect from every Financial Planning client.  Whether you retain a Financial Planner or do it yourself, you can get this information.

The Social Security Administration sends out an annual statement (SSA-7004) to all taxpayers over the age of 60.  That’s a bit late to start incorporating that info into your planning.  Everyone can get one by going here:  www.ssa.gov/myaccount.  The registration process is cumbersome as it combines government bureaucracy and inefficiency with the financial sectors fraud paranoia.  You will need a Drivers License, and verifiable street and email addresses.  The DNA sample requirement proposal did not pass the Congress. 

It involves getting a verification confirmation via snail mail, so it can take a few weeks.  However, once you are registered you can log on and get your info any time, which you should do annually, even if just to check the accuracy of their records.  It’s important to know where you stand and incorporate reality into your planning.

The Bottom Line:  Knowledge Is Power In Your Financial Planning.

–Michael Ross, CFP®

Resist The Temptation…

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It’s finally time to get a new car.  The supply shortages have eased and there is inventory. 

But, a few things have changed…

Prices are much higher, and interest rates have skyrocketed.  The average new car sells for over $45K and interest rates are in the 8-10% range.  Even used cars are far more expensive.

If you have a 401(k) plan, you may be able to take a loan from your plan to finance the new car.  Most 401(k) plans allow for participant loans.  Some rules and rates are set by your individual plan, but regulations say a plan loan cannot exceed 5 years or $50,000.  You also must make level payments at least quarterly.

There are some alluring advantages to using a plan loan to finance a vehicle purchase.  Interest rates are often lower than bank sourced auto loans.  You are paying interest to yourself, in a period where your portfolio may not be growing much due to market and economic conditions.  It doesn’t affect your credit score, and there is no lean on the vehicle title.  What’s not to like?

The plan loan comes with a big risk.  If your employment terminates for any reason, the entire loan balance becomes due.  Depending on the plan, it’s usually immediately or at months end.  It does not matter, why your employment terminated.  Whether you quit, got fired, or laid off, it’s all the same – the balance is due.

If you do not repay the loan, it will be considered a plan distribution.  That means it becomes taxable income, subject to ordinary income tax and a 10% penalty if you are under age 59 1/2.  Depending on your financial situation, that can range from an annoyance to a nightmare.  It carries risk under good economic times, and can influence a decision on whether to switch jobs.  Now that the economy faces some risk of a recession, a layoff is not when you want a large bill, either loan repayment or tax.

Everyone has their own financial situation and plan.  Depending on yours, you may be better off resisting the temptation of a plan loan.

The Bottom Line:  Evaluate all the risks of a 401(k) plan loan.

–Michael Ross, CFP®