Thoughts On Money [TOM]

There's a question we’ve been getting multiple times a day recently:  I am concerned with everything going on in the world right now; don’t you think we should adjust my portfolio accordingly?

I first want to say this is (1) a good question and (2) absolutely a valid question.  In life, when we feel threatened it is our natural instinct to react – to feel inclined to do something.

Join us for today's Thoughts on Money, what we like to call, "TOM." 

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I knew I wanted to be a financial advisor, but I just couldn’t figure out a way to get my foot in the door. There were not any job postings stating, “Looking for Financial Advisor, No Experience Required.” It was that chicken-or-egg problem, I needed the job to get the experience, and I needed the experience to get the job. So, I settled. I broadened my search from the specific role [financial advisor] to just getting a “resume builder” entry-level position within the finance industry. This is the backstory of why my career journey started in retail banking.

Just being honest here, I despised working at the bank. As a banker, the incentives didn’t put the client’s interest first, and the incentives were designed based on an inaccurate assumption.

Here’s my guess, at some point research was conducted that concluded that these banking customers who had more products with the bank had lower attrition rates. Another way of saying, a more engaged customer was more likely to stick around. So, an incentive plan was designed to get bankers to “sell more stuff” with the thought that this would be a profitable endeavor, both on the new product sales side and the customer retention side. Economics 101 tells us that incentives drive behavior – both good and bad – so a culture was born of bankers pitching superfluous products to clients who didn’t want, need, or even sometimes know they were sold these products. A practice that was antithetical to what you’d assume or desire from someone stewarding your finances.

Although I look back at this experience with frustration and disbelief, the fact pattern does make sense to me. Leadership thought they were rolling out a strategy to drive profitability and retention. In the end, this was just a classic case of confusing correlation and causation.

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As we get older, we acquire quite a robust library of life lessons. My life lessons tend to be accompanied by a vivid memory of when I first acquired each particular lesson/truth. For today's topic, I'd like to recall a memory from January 2020.  

I was sitting in my office in Newport Beach, conducting a review meeting with a client that had been with our firm for less than a year. The meeting was chock-full of very engaging questions, and we were pushing the ball down the field on the first iteration of their financial plan. One of my colleagues dropped in to introduce themselves, and the three of us got into a discussion about this new Covid-19 virus. We tackled questions like, what impact would Covid-19 have on society? Our economy? The market? Our investment portfolios? And so on...  

Again, this dialogue is one of those vivid memories I mentioned above. As we went around the table offering our opinions and forecasts, I remember comparing Covid-19 to the SARS virus and a former Ebola scare. I referred to the market's reactions to those events and offered a comparison that we could use to anchor our expectations. This dialogue wasn't just meant as banter, but the client wanted to know how they should react. I advised my client not to react and to stay the course of the current strategy and plan we had in place.  

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To Sell, or Not To Sell, That is the Question...  

I met with a few friends this week. It was a bit of an advice gathering, a meeting of the minds of sorts. They've owned a property for some time and were contemplating a sale. One of the primary objectives was just to relieve themselves of all of the general maintenance and the burden of being a landlord. The fact pattern made a lot of sense – they'd gleaned great benefits from this property over the years, and they were ready to pivot. Then the non-sequitur, "I don't know... with everything going on with the stock market lately, maybe we should just put this decision on hold for a bit."   

Say What!? 

The "stock market?" The tax impact should be a factor to consider. How this impacts their estate plan should be weighed and pondered. Finding the right buyer at the right price should be a priority. But the not the "stock market?"   

The current real estate market has strong demand and what seems to be lighter than normal supply. These dynamics create bidding wars, and sellers benefit from some historical record-breaking sale prices.   

BUT the TV screens are flashing red, and the anchors are talking about a struggling stock market in 2022. All of this with not even a month in the record books yet.   

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Recruit Paul Revere. We need to make sure everyone knows.

What’s all the fuss about? Well, one particular asset class – a popular one at that – had one of its worst years in 2021, and no one is talking about it. How in the world is this flying under the radar? Why are we not sounding the alarm?

A bit dramatic? Of course, but hear me out.

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Trevor and Deiya dive deep into the value and dangers of debt

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It was the Summer of 2018 when Thoughts On Money was born. Brian Tong, Director of Strategy & Communications at The Bahnsen Group, was willing to entertain an idea I had for writing a weekly note on financial planning, what came to be affectionately known as “TOM.” Some three years later, and Brian (along with Glen Hall) has edited, published, and recorded about 150+ of these little TOM notes.

As a reader of our content or a client, you begin to learn some of the names and faces of The Bahnsen Group. You may have a deeper, more familiar relationship with one or two of us, perhaps you’ve met another one or two in passing, and maybe you are aware of some of the others that make up this team. If you work at The Bahnsen Group, you know this more than a team; it’s a family. Now 35+ members make up this family, and there is a constant buzz and conversation across different departments and team members all striving for one goal – how to serve our clients better.

Why this topic? Well, I think this is one of the more underappreciated areas of financial planning. We have a lot of folks that come to us because they want a trustworthy advice-giver to backfill them as the CFO of their household. We hear this a lot, “I just want to make sure my family is taken care of if anything was ever to happen to me.” This is a common desire, and resourcing an advisor is a positive step in the right direction to solve for this. Still, there are also some practical steps around organizing your financial documents and executing some estate matters that often get put on the back burner or forgotten. Today we discuss real-life experiences as a financial advisor and use these examples to reiterate the importance of organization and legacy planning, all from a practical application perspective.

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In finance, inflation is this "not-enough" villain that's always hiding in the shadows. We are good at figuring out how much stuff we can buy today; that mental math is easy. BUT this idea that our money loses its potency over time makes it very hard for us to figure out what we can afford tomorrow. 

We are all looking for practical ways to combat the fact that a dollar is a dollar today, just as it is tomorrow, but a dollar will buy less today than it did yesterday and even less tomorrow (that's a tongue twister). We are all in search of practical ways to hedge inflation. 

Inflation is top of mind right now, and it's everywhere we look these days - from newspaper headlines to political speeches to the gas prices at the pump. 

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Great Service

Why? Because so much of happiness, or contentment, is derived from outcomes – how things turn out – being better than what one may have expected.

Imagine the opposite; how does it feel when someone overpromises and under-delivers? Frustrating, disappointing, annoying, arghh! And the list goes on.

Just Like Last Time

One of the most commonly referenced cognitive biases in behavioral finance is recency bias. This bias is our tendency as investors to lean more heavily on recent outcomes to guide future expectations. BUT past is NOT prologue, and herein lies the exact issue that we will address in today’s discussion: investor’s great [misplaced] expectations around future investment returns.

Today on Thoughts On Money, I bring you another podcast interview with one of my colleagues at The Bahnsen Group, Kimberlee Davis. Kimberlee is a Managing Director, a Partner, The Fiscal Feminist, a Private Wealth Advisor, and she carries a myriad of other titles, roles, and accomplishments, both professionally and personally. What you don’t see on her business card or resume, though, is that Kimberlee is the proud mother of three and an engaged daughter who serves/cares for her parents.

Kimberlee penned an article titled Blindsided By Being Sandwiched!, where she discusses her personal experience with her duties/responsibilities for caring for her aging parents AND simultaneously supporting/mothering her three young adult daughters. Kimberlee approaches the topic by sharing her journey and providing the perspective of a financial advice giver. This professional wisdom and her personal experience made her the ideal candidate to interview on this topic.

This subject, the idea of “being sandwiched,” caring for two generations simultaneously, will be a reality for many. Kimberlee shared with me the importance of (1) being aware of your family’s potential care needs on the horizon and (2) being proactive in having candid conversations with your parents and children to set clear expectations. Kimberlee discusses the financial implications, the time commitment, the emotional toll, and much more.

This interview is not a “10 Step Checklist” or a “How-to Guide,” but rather a REAL conversation with a REAL professional living out this reality. Please join us for an inside look at being sandwiched and the sage wisdom from our very own Kimberlee Davis.

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