Robert Schmansky saw a need for investing advice on the investor's terms. So he filled it withClear Financial Advisors, a new kind of financial advising firm. He took a moment away from his busy schedule to talk with us about financial planning and the right questions to ask when investing.
At what point should someone consider hiring a financial advisor?
I think more people can benefit from speaking with an advisor than may be aware. Most wait too long to speak to an advisor; oftentimes they will think they have not accumulated enough, or don't have a complicated enough situation to warrant professional advice.
I find many who get the biggest leap on their financial goals met with an advisor early. There are potentially many benefits to working with the right advisor that individuals don't consider. While your portfolio may not be as large as you would like, you may benefit from being more diversified, or considering where you are saving, otherwise known as the structure of your portfolio. The sooner you are comfortable working with an advisor, the better.
What are some misconceptions you see about personal finance in the course of your work?
Many believe they won't find a benefit for the cost, and I can't say I don't understand that the benefits may be difficult to quantify, but I don't agree that most who seek advice do not find it worthwhile.
There is an aversion to paying for financial advice. As an advisor who offers hourly advice as well as portfolio management, I have many clients who are reluctant to spend on an advisor and who try to minimize the costs they pay. I started my firm in order to work with people on their terms, and while I offer services to those who are cost conscious, I find many who only want a second opinion very often make mistakes in implementing their portfolio, or ignoring the risks and tax consequences of their current plans that cost then more than they will ever be aware.
Many also think once they have a plan, or once they reach retirement, they are set. There is research to suggest that having a withdrawal and income plan that considers changes throughout retirement can add five to seven years to the length of a portfolio.
Financial planning isn't a one-time event. Circumstances change, tax laws change, and our expectations for the future change. Your plan today shouldn't be your plan in the future.
How clear are the risks when it comes to investing? Could the risks be clearer?
People have as many ways they define investment risk as there are risks to investing. The traditional definition of "risk" is losing money or portfolio volatility. The trade-off is often presented as an either-or...you must take on more volatility in order to achieve greater returns.
As a professional portfolio manager, my role is not only to invest for returns, but in managing risk and volatility.
We want to take risk where we're rewarded for it, and yet most investors I find seek out uncompensated risk since it is easier to understand. Investing in junk bonds may pay a little more in yield, but it doesn't pay to risk your principal in the bond market. This is especially true for retirees, and yet the majority of professional investment managers and investors try to beat the bond market much more so than understanding how to take risks in other assets.
How has investing changed as the economy has become a bit tougher?
Investing today is tougher only if you don't have a philosophy. Some say you have to give up on diversity in this market and just accept more risk. The idea here is you should avoid safer bonds and invest in higher yields and dividend stocks. Well, we saw what happened in 2008 when bank stocks plummeted and dividend stocks slashed their payouts. It didn't work then and doesn't make sense today, either.
On the positive side, it is much easier for anyone to invest today in more diverse, market-based mutual funds and exchange traded funds than ever before. Funds that only a decade ago were only available to those who had $1,000,000 or more to invest are today available at the same cost for someone starting out with $100.
The same can be said about working with advisors; there are many more qualified financial advisors who are willing to work with and provide advice to anyone seeking help. The Garrett Planning Network is an example of vetted, high quality advisors who have committed to working with anyone.
What would you say to someone worried about investing their money?
Have you measured how long your money will have to last? Do you know the amounts you will need over the coming years, and where it will make the most sense to draw from? Do you have a plan for that portion of your portfolio that you may not need to draw from that will outpace the rise in prices?
If not, your money is losing ground. I'm fearful of the possibility for higher inflation in the future, and most of the expected income streams and safe assets I include for my retirees needs just won't keep up. We need a plan that considers the need to grow money that won't be needed for some time yet.
What questions should someone ask themselves before investing?
Do I have a need for any of these funds for the next five years? Ten years? Can I ride out the market ups and downs before I need to make withdrawals?
What is my investment philosophy? What is it I believe someone can help me do with my investment portfolio? Do the limitations in my workplace plan match my needs and my investing philosophy?
Do I have a plan that considers all of my opportunities from a tax and workplace plan perspective? Have I reviewed all of the benefits and costs to the potential places I can invest?