James Osborne of Bason Asset Management knows that working with a financial professional can help individuals reach financial goals.
Here, Osborne shares some of his tips for individuals looking to get to that next level and better understand asset management and what it can do for them.
Let's start with talking about asset management. Who needs asset management and why?
Many individuals who would like to reach a point of financial independence (or have already) do so by investing in stocks, bonds, mutual funds and ETFs. Portfolio management is about first developing an investment policy statement consistent with your financial goals, as well as your need, ability and willingness to take investment risk.
Bason Asset Management works with clients who are looking for assistance in building sensible, low-cost portfolios of cost-effective and tax-efficient index mutual funds and ETFs.
In what ways does asset management enable individuals to reach their financial goals?
The power of compounding is a wonderful thing. By saving and investing today, individuals can harness the financial markets to earn reasonable long-term returns and grow their wealth faster than the rate of inflation. Not everyone will choose to work with a financial professional, but many will find value in a relationship that works to define financial goals, develop investment policy, build a well-diversified portfolio and help keep investors on track to their long-term success.
What makes up a comprehensive financial plan, and in what ways does that plan benefit an individual?
Before any type of investment strategy can be implemented, individuals must define their goals. Goal-setting is the first step in the financial planning process. Most of us will want to save for retirement, a child's or grandchild's college education, future homes, charitable giving, transferring wealth to family - the list goes on. Should we have life insurance and how much? What about disability insurance? Do we have reasonable coverage in place for our homes and autos? Once we know our goals, we can develop plans and strategies to save and invest to meet those goals. We will also have to prioritize: is it better to invest or reduce debt? Save money pre-tax or after-tax in a 401(k) plan? Save more for retirement or college? Many of these decisions aren't strictly based on the numbers, so the planning process is very personal and our own priorities must be considered.
If you could offer one piece of advice pertaining to financial goals to someone just starting out in adulthood, what would that be?
The single largest determining factor to financial success is this: you must live not just within, but below, your means. It doesn't matter if you make $300,000 per year if you spend $290,000 per year. The earlier in life someone figures this out, the better off they will be. Many of my clients who have successfully reached financial independence were able to do so because they simply believed that they had less money to spend than they truly did. This allowed them to save and invest wisely over time and build wealth. A sense of entitlement about personal spending can be a very dangerous thing.
What about for someone 10 years away from projected retirement age?
Individuals who are approaching retirement need to take a good long look at their finances. They should have a very good handle on what their average spending is each month and what it is made up of. Is there a mortgage payment? How long into retirement will it last? Are the kids through college and financially independent? I am always surprised to find people who would like to consider retirement but have no real grasp of what is going out the door each month. For most people, this is also a time to start consolidating their investments and simplifying their financial lives. Planning for retirement can be difficult enough without six different retirement accounts left behind at former employers and investment accounts at three different brokerage firms.
What trends do you see happening in the world of investing? How does Bason Asset Management address these trends?
Without question, we are living in the best time to be investors in history. Costs to invest are now at rock bottom. You can buy the entire US stock market in a single ETF for 0.05% and a $9 commission. Or you can buy a set-it-and-forget-it target date retirement fund in your 401(k) for less than 0.20% (if you're lucky enough to have a good 401(k)!). Investors have wizened up to high fees, and the industry is finally responding in turn with a race to the bottom. For nearly nothing, investors can access limitless research on stocks, mutual funds and asset managers. Online, the financial web and blogosphere has become an amazing meritocracy of solid, evidence-based and insightful investment commentary. The next shoe to drop is going to be the cost of financial advice. While automated investment services are growing ever-popular, offering portfolios for 0.25% on average, individualized advice is not part of that package. Thankfully for many, new professional advisory fee models are sprouting up everywhere. You can find an intelligent, credentialed planner to work on a one-time basis, or pay a monthly fee for financial planning advice, or work with a firm that charges a flat annual fee for what used to cost 1-2% of a portfolio.
Investing can cause some anxiety as the market fluctuates. What words of wisdom can you provide to help individuals uncomfortable with these fluctuations?
The key to managing market fluctuations is to have very realistic expectations before you invest. The market will go up, and it will go down. Sometimes it will go down a lot. Much more than you want it to. But that is the nature of markets, and stock returns are the reward you receive for tolerating uncertainty and volatility. The next step is to make sure that you have a portfolio with a level of risk that you can tolerate. Investing more conservatively may cost you in long-term returns, but that's far less than the price you would pay if you irrationally sold out at the bottom of a bear market in stocks.
What are some non-traditional ways of investing, and in what ways does Bason Asset Management help customers who are interested in alternatives?
The fact is that there are only so many true asset classes available in which to invest: cash, bonds, stocks, hard assets (real estate, commodities) and currencies. All investment products own some mix of these assets. Most "alternative" investments are simply a more complex, more expensive way to own these assets. Investors are always on the lookout for a silver bullet - something that will give them better returns with less risk - but they usually end up getting mediocre returns with higher fees. A simple, low-cost, broadly-diversified portfolio will beat out more complex, expensive strategies the overwhelming majority of the time.