Most Americans don’t have a financial plan. One study shows only 1 in 4. A CFP Board study showed only 35% of people have a plan to save for emergencies. Only two-thirds have a plan to meet any of six savings goal, such as for emergencies, retirement, a child’s education or a down payment on a house. People spend more time watching reality TV than they do planning finances.

 

WHY? We’ve heard all of the reasons.

• Don’t want to pay for financial advice because I am not positive I need it
• Don’t want to get ripped off
• Can get investments at low cost – isn’t that what financial advice is really about – so why hire an advisor who just gonna try to sell me expensive investments or insurance
• I’m a DIYer – why not financial planning? Should be able to do it myself
• Financial plans are only for people with so much money, they don't know what to do with it, right?
• It never occurred to me that I might need a plan – 20% gave that answer in a Charles Schwab survey
• Another 20% in the same survey said they wouldn’t know how to get a plan

 

WHY the big deal?

• Less than 40% could access $1,000 in an emergency even though half of us have just such an emergency every year.
• The average 2018 college graduate has student loan debt of about $30k and a monthly payment of almost $400. This does not count the more than $10k of debt their parents borrowed.
• Zillow says it now take almost 7.2 years to save the 20% downpayment for an average house IF you’re saving 10% of your pay.
• NY Federal Reserve Bank says a RECORD 7 million people are behind on their car payments by at least 90 days.
• According to the Economic Policy Institute, the average retirement savings for the families of people in their 50s is $124,831 in 2018.

 

So, across all ages, we have a financial crisis. Recent college grads and folks nearing retirement and everyone in the middle.

 

It cannot be coincidence that we GENERALLY do not have a written financial plan AND that we are financially unprepared for daily life much less big long-term goals like retirement.

 

It would be bad enough if it were just about the money but it’s not …

• 70% of people who work with a financial advisor or financial planner (and presumably have a financial plan) are on track or ahead in saving for retirement. That compares with 33% of those who do not with an advisor.
• Those with a plan making between $50,000 and $99,999 are more likely to live comfortably than even those making $100,000+ without a plan: 50% to 46%.

There is a misconception about what a plan is – it’s NOT just investing. Investing is only ONE part of many. A plan has at least 7 things:

• Cash management
• College planning
• Estate planning
• Debt management
• Risk management
• Retirement planning
• Tax management
• Investment planning

A Vanguard study about the value of a proper advisor relationship could add “about 3%” to your returns. That’s NET of fees and that’s important because Vanguard provides option for low cost investing. Value is in 3 areas:

• Portfolio Construction (what investments and in what proportions)
• Wealth Management (spending strategy and maintaining portfolio targets for risk)
• Behavioral Coaching (this is a big one – guarding against the biases and attitudes that cause all of us to make bad money choices)

 

If value of advisor is 3%, wouldn’t you be willing to pay anything less than 3%?

 

One of my favorite examples is about Peter Lynch – legendary manager of Fidelity’s Magellan fund from 1977-1990.

During his tenure Lynch trounced the market overall and beat it in most years, racking up a 29 percent annualized return. But Lynch himself pointed out a fly in the ointment. He calculated that the average investor in his fund made only around 7 percent during the same period. When he would have a setback, for example, the money would flow out of the fund through redemptions. Then when he got back on track it would flow back in, having missed the recovery.

 

Another study showing similar results is published each year by the research firm Dalbar. The 2017 Dalbar study reported results through 2016 (still waiting for 2018 but wouldn’t expect any improvement in our behavior)

 

The key findings of the study show that:

• In 2016, the average equity mutual fund investor underperformed the S&P 500 by a margin of -4.70%. While the broader market made gains of 11.96%, the average equity investor earned only 7.26%.
• In 2016, the average fixed income mutual fund investor underperformed the Bloomberg Barclays Aggregate Bond Index by a margin of -1.42%. The broader bond market realized a return of 2.65% while the average fixed income fund investor earned 1.23%.
• Equity fund retention rates decreased materially in 2016 from 4.10 years to 3.80 years. (This is directly related to psychology and behavior.)
• In 2016, the 20-year annualized S&P return was 7.68% while the 20-year annualized return for the Average Equity Fund Investor was only 4.79%, a gap of -2.89% annualized

 

Now these are just the things an advisor and The Plan can do for you in the Investment Area BUT Investments are just one area.

 

The whole idea is the value of the advisor AND the PLAN you develop together is to help align YOUR behavior - decision-making behavior AND investment behavior - with YOUR goals, YOUR sense of purpose, and YOUR values.

To explore working with Wayne Firebaugh to fireproof your money, please call 855-WAYNE KNOWS or check out at fireproofyourmoney.com.