The Wealth Fix

If you are a parent you know that higher education is expensive - so how do you plan to pay for college for your kids? For this episode of the podcast, I’ve invited my friend Brody Rosenfeld to join me to discuss this issue. Brody has experienced his own college funding struggle first-hand, including graduate school - and he’s also walked alongside clients in making plans to pay for their children’s college. Together, the two of us have some ideas about how you can begin to plan for the typical college expenses and even offer some ways you can save for college tax-free. Please, join us for this conversation.

Outline of This Episode

• [0:21] Brody Rosenfeld’s experience paying for his own college education
• [2:42] My experience and the benefit of the G.I. Bill, plus grad school expenses
• [7:49] Why is college so expensive?
• [11:30] The first steps toward saving for college
• [12:56] The 529 Plan to save for college tax free
• [16:22] How less expensive schools can be a huge benefit
• [18:30] The G.I. Bill is a huge benefit to consider
• [19:07] Federal loan forgiveness programs

Why IS college so expensive in the United States?

Many of us funded our own college education with student loans, and the proof of that fact can be seen today in the existence of over $1.6 trillion of student loan debt. That student debt has a dramatic impact on the economic potential of new grads - causing them to delay or even postpone indefinitely the financial decisions that drive our overall economy. For example - every $1000 in student loan debt lowers a person’s likelihood of homeownership by 1.5%. It’s a problem that impacts an entire generation of Americans.

But the question remains, “Why is college so expensive in the first place?” Three factors play a part in the answer...

Legislation - changes in the economy - the high demand for college education

Listen to this episode to learn how each of those plays into the cost of a college education and how you can begin to address the issue effectively. 

Paying for college outright requires a plan

The task of entirely paying for even one student’s higher education is astronomical these days. The average public school education costs $20,000 per year and the average private school education can be as much as $47,000 per year. Deliberate planning is necessary if those costs are going to be handled apart from taking on student loan debt.

Brody and I recommend that you start planning by defining your contribution level to your child’s education. Are you going to pay all of the cost as their parent? Will you only pay some of it? Will the child be required to work for scholarships and grants or work their way through school at least on a part-time basis? These questions and many more need to be a vital part of any planning you do. Listen to learn more of the things you should be asking. 

Have you heard about the benefits of a 529 plan to pay for college expenses?

Savvy parents and students are open to all kinds of options when it comes to paying for college. One of the most beneficial ways to go about it - especially if you are starting early - is to use the government’s college savings plan known as a 529. Currently, there is $328.9 billion invested in 529 plans and the number is only going up.

What’s so good about a 529 plan? It enables you to deposit funds into the plan and direct them toward investment accounts. All of the growth is tax-free - which enables you to keep much more of the money you earn to use for college expenses. Under a 529 plan, you can contribute $15,000 per year, per person to build your investment nest egg. There are also options to contribute even more all at once through what is known as a “superfund” plan. Listen to find out more about the 529 and get your college savings underway! 

Why a community college is a better option than you may think

Some people have a negative impression of a community college education, but Brody and I recommend you take another look if you’re one of those people. We both experienced community college and felt our experiences were good. But more importantly, the education you get at a community college is typically just as good as a higher level or 4-year school and will cost far less. Many people get their basic curriculum requirements out of the way at a community college and then transfer to their “dream school” to focus on their chosen area of study.

One of the things I like to explain is that nobody is going to ask or even care what community college you attended. They are only going to care about the college you graduated from, so if you can save money and still get the education and graduation credentials you need, why not do it?

I hope you listen and take to heart the advice Brody and I share on this episode. A college education is possible if you plan early and get started.

Resources & People Mentioned

• 529 Plan
• The GI Bill

Connect with Brody Rosenfeld

• Brody on LinkedIn

Connect With Ryan A. Hughes and Bull Oak Capital

• www.BullOakCapital.com
• Podcast (at) BullOakCapital.com

Most people understand the basics about the stock market and the economy - but few people have a deep enough knowledge of the two to serve them well in making financial decisions. With that in mind, I thought it would be helpful to outline how the economic cycle works and how stocks, the underlying economy, and the leading indicators can help us forecast what’s coming next so that you can make solid financial decisions. 

Outline of This Episode

• [0:30] Why it’s important to know how the economic cycle works
• [1:10] The historic stock market drop in December 2015 - as an illustration
• [3:07] Why you need to understand the basics of the economic cycle
• [6:44] How does the movement of the stock market affect the underlying economy?
• [8:55] What SHOULD we look at to understand economic health?

What is an economic cycle?

Simply put, the economic cycle is the booms and the busts of the overall economy. During a boom time, the overall economy is healthy, jobs are available, corporations are profitable, etc. A bust is just the opposite - jobs are scarce, corporations are having a hard time making money, and the overall spending of the population is down as a result.

Economic cycles are important to watch and understand because we can learn to see patterns and correlations from one cycle that can possibly inform us about the next. In this episode I describe the way the economic cycle works and what we start to see as a recession or downturn happens. Be sure to listen.

MYTH: The stock market is a leading indicator of the overall economy

In December 2018, The S&P 500 (stock market) fell by 15%. The concern was that we were entering a recession and many believed they might be losing their job, or that they should sell their stock holdings. Many people hold the misconception that the stock market is a leading indicator of the underlying economy or that it represents the overall economy. But it’s not true.

The stock market is more of a forward-looking indicator that is actively trying to price in the overall economy itself. Even though it’s forward-looking, it’s not a reliable leading indicator. It’s constantly trying to guess whether the economy is going to get stronger or weaker - it’s an aggregate of many variables. The overall economy will typically drive stock prices, but the stock market does not necessarily have that much of an impact on the economy overall. A great example of this was what happened in 1987’s “Black Monday” when the stock market fell 23% in a single day but the underlying economy didn’t even bat an eye.

4 things that drive the health of the underlying economy

Naturally, there are many things that impact the direction the economy goes, but on a very basic level there are 4 things that drive the underlying economy. These can legitimately be called leading economic indicators. What are they?

1. Employment - people lose their jobs
2. Income - resulting from loss of jobs
3. Sales - people are buying less because they are earning less
4. Output - companies reduce output to be comparable to the decreased demand

During an upturn in the economy, these indicators feed into each other, driving prices higher. The sales cycle is extremely difficult to predict, no matter how much economists and those forecasting the stock market try to do so. 

What should we be looking at as recession indicators?

There are many things that point to the possibility of a recession. Traditionally, there are eight things that we can watch to discern if a recession is on the horizon. They are...

Sensitive commodity prices

Average manufacturing work weeks

Commercial and industrial building contracts

Inverted yield curve

New incorporations

New orders

Housing starts

Money supply

I think the one we need to understand is the INVERTED YIELD CURVE : it’s a highly reliable tool to track, if there is an unexpected slow-down in economic activity. It’s not perfect, but it’ spretty reliable. Here’s how it works…

A yield curve shows interest rate points across several maturity dates. Most of the time it’s just a chart of the US Treasury Bond yield curve - from 3 months all the way up to 30 years. It’s important because the Treasury Bond is quite possibly the largest and most widely held security in the world. A normal yield curve (which shows a normal risk appetite among investors) is an upward sloping chart… the rates of a 3 month treasury bond will be lower than a bond of greater maturity length. However, that curve can flatten or invert - inversion means shorter term rates are higher and longer term rates are lower.

The problem with this indicator is that there is a long lead time - it usually inverts years before an economic slowdown. Used in tandem with other economic indicators it can be very helpful.

 Listen to learn more about why the stock market is not a leading economic indicator and how you can become a better observer of the economy.

Resources & People Mentioned

• Paul Samuelson
• Jeffrey Moore’s Composite Index

Connect With Ryan A. Hughes and Bull Oak Capital

• www.BullOakCapital.com
• Podcast (at) BullOakCapital.com

Did you know there are over 686,000 financial advisors in the United States as of 2017? That means there are a lot of people out there giving advice about financial matters and getting paid for it. Of course, that’s fine - but if you’re wanting to work with an advisor to build wealth, there are some things you should look out for.

On this episode, I want to lay the groundwork for everything to come by giving you 9 tips I’ve learned from my experience as a financial advisor that will help you find the perfect person to advise you about financial matters. Listen carefully, take notes, and apply them to your search.

I’m going to fill you in on a few of these tips below but listen to the entire episode to hear all nine.

Outline of This Episode

• [0:28] Reasons you may be trying to find a financial advisor
• [1:03] 1: Work with a true fiduciary advisor
• [2:26] 2: Make sure the advisor has a formal education in finance
• [3:47] 3: Work with a planning expert who runs multiple scenarios
• [5:21] 4: Work with someone who has been managing wealth for at least 10 years
• [6:36] 5: An advisor who has an evidence-based philosophy and non-customized portfolios
• [9:29] 6: Fees are transparent and easy to understand
• [10:25] 7: Make sure your assets are held at a 3rd party custodian
• [11:30] 8: You want an advisor who has a record of compliance
• [12:11] 9: Make sure you enjoy working with the individual you choose

TIP 1: You want to find a financial advisor who is a true fiduciary

Are you familiar with the term “fiduciary?” It’s an important word when it comes to finding a financial advisor.

Fiduciary: Placing another person’s interest above your own

When you’re hiring someone to advise you about what to do with your money or to recommend investments, you want someone who is working for you first and foremost, not someone who might have a stake in the game that motivates them to look to their own interests first. 

An easy way to find out if your potential advisor is a true fiduciary is to ask a simple question: “Are you affiliated with a broker or dealer?” If the advisor answers, “Yes” then there is potential that they will not be working for your interests first - they are not a true fiduciary.

TIP 3: Look for a planning expert who works with multiple scenarios

Creating a comprehensive financial plan takes a lot of work. It’s the process of projecting your financial life into the future to figure out the best financial decisions to make now. That requires running many different scenarios to answer the big questions like…

• When should you retire?
• When should you file for Social Security?
• Should you downsize your home?
• Should you purchase a rental property to add to your monthly income?

If you find a financial advisor who doesn’t approach financial planning in this way, you’re missing out on a huge benefit that you need. Vanguard published a report that stated that a good financial advisor can add the equivalent of 1.6% in annualized portfolio returns through advice alone! Make sure you work with a planning expert who can run those scenarios to give you the best advice - it’s very important.

TIP 4: Work with an advisor who has been through the entire market cycle

There are likely a lot of younger financial advisors who are genuine, good people - but the financial industry is one where experience matters. Why? Let’s consider an example: An advisor who has not been working long enough to see a full market cycle of ups and downs in the economy is not going to have enough experience during the down times to advise you well. They might panic and advise that you pull all of your investments just as the market hits the bottom. But a seasoned advisor will have the personal knowledge to not only know that course of action is a bad idea, but why it’s a bad idea, and what you should do instead. How much experience is enough? I advise over 10 years of experience.

TIP 7: Make sure your assets are held at a third-party custodian 

If the person who is advising you about your finances is also holding your assets, you run a huge risk of fraud taking place. The Bernie Madoff scandal happened because as an advisor, Madoff had access to the assets of his investors. That’s not safe or secure.

The best situation is for your advisor to work with a discount brokerage firm like TD Ameritrade, Fidelity, or any of the others. Just make sure the firm they work with is a discount firm so that you don’t have to pay higher fees for the trades your advisor makes. 

Again - there are several more tips covered in the audio for this episode that you need to know if you’re trying to find a financial advisor, so be sure to listen.

Resources Mentioned

• The SEC website
• TD Ameritrade
• Charles Schwab
• Fidelity
• ETrade

Connect With Ryan Hughes and Bull Oak Capital

 

• www.BullOakCapital.com/podcast 
• Podcast (at) BullOakCapital.com