Wednesday, March 27, 2013

The 5 Real Reasons to Hire a Financial Advisor

When investing, everyone wants their investments to outperform the the stock market ... it makes sense.  But if you choose to work with a Financial Advisor solely for this reason, you are making a mistake.

We know what has already happened in the stock markets, and we know what is currently happening, but no one knows, with absolute certainty, what is going to happen.  There is no crystal ball or magic formula that will guarantee big returns.  If there were, I would guess that there would be a lot more Advisors who are retired and living on a beach somewhere.

In a recent post on LinkedIn, Sallie Krawcheck, former president of the Global Wealth & Investment Management division of Bank of America which includes Merrill Lynch and U.S. Trust, shares her
thoughts on what some of the REAL reasons for working with a professional Advisor are.


If you believe much of the media, you hire a Financial Advisor to try to outperform the stock market. Never mind that this can have very little bearing on whether you can live or retire as you would like. Never mind that research has shown that even the hottest hedge fund managers struggle to outperform the markets. (Ok, they don’t struggle to; they don’t.)

The better reasons to hire one are to:

Press you to answer questions you don’t want asked, like how you plan to take care of your aging parents if you need to, whether your will is up to date, how you are going to send your kids to college, what you will do if you lose your job. These are the types of questions that make most of too uncomfortable to ask ourselves.

Put together a financial plan. Very few people ever, ever do this on their own. And most drag their feet on doing it with their Financial Advisor, too. It takes time and it can hurt. But it matters.

Identify risks in your portfolio that you might look right past, like being overweight the US (which is most of us in the US) or being mostly invested in tech stocks, when you’re in the tech industry.

Talk you through market volatility. Most of us energetically claim we don’t need this. It’s hard to project forward an image of ourselves being nervous or scared, and our recollection of past pain has been shown to fade over time. (Just ask any woman who has been through childbirth more than once!) But another voice besides your own during tough markets can be invaluable.

Identify your biases. This is a biggie. Many of us think we don’t really have any….which is exactly the point. One big one: women tend to be more risk-averse than men. That is neither good nor bad of itself, but it is something that should be tested and pushed at a bit, given that women as a group also earn less and live longer than men. As a result, they could perhaps tolerate a bit more risk.

Yes, Financial Advisors cost. But if they are able to provide the services above -- and particularly if they can do it earlier in one’s investing life -- their value can be meaningful.

Source The 5 Real Reasons to Hire a Financial Advisor

Wednesday, March 20, 2013

Comfortable investing – investment risk levels and you

The market goes up and down and so does your stress level. Are you uncomfortable with your investments or confident their value will be there when you need it? Investing for the future can be tricky. There are so many things to consider, including how much investment risk - the potential for your portfolio to decline in value over the short term - you’re comfortable with.

To help you get a solid read on what’s right for you, here are some tips for separating facts from feeling to create a comfortable portfolio that works.

Take your time to make the right decisions based on your personal risk level.  Carefully assess the investments from which your portfolio will be constructed. If you are uncomfortable with risk, focus on capital preservation and income generation in a portfolio comprised mainly of the more stable fixed-income type investments. As your capacity for risk increases, add equities for a potentially higher rate of return and potentially higher volatility.

Determine your personal capacity for investment risk
Ask yourself fact-based questions like this:
  • What is my investment timeframe? If it’s less than four years, don’t invest in higher risk assets. If you have an investment horizon beyond ten years, experts believe that you should invest in a more aggressive portfolio because historical trends show that, over the long term, you will benefit from a higher rate of return with ample time to recover from short-term volatility.
Ask yourself feeling-based questions like this:
  • Can I sleep soundly at night? Regardless of your investment horizon, the way you feel in the short term when the markets go through a severe decline will not change. Feeling-based questions should serve as a tool to prepare you for what you should expect and focus your logic and emotions to identify a consistent pattern of how you perceive investment risk and what you are realistically capable of withstanding.
The biggest mistake investors make is to overstate their comfort level with risk because that often leads to abandoning their investment strategy at the first sign of volatility. When you choose the right strategy from the start and stick with it, you will be rewarded over the long term. Of course, you should revisit your portfolio and investment strategy as conditions and your financial and life goals change to keep it in tune with you.

With so many different types of investment products, different asset classes, different industries and countries, determining the right strategy can be daunting. Get help from your professional advisor and ask them if they can provide you with an investment questionnaire, which is a great tool for identifying your personal risk level and creating a framework for constructing a sound, well-diversified strategy for you.

Monday, March 4, 2013

Small business succession planning

It is your small business and you’ve worked hard to make it a success.  But one day it won’t be yours. You’ll decide to step back and hand over day-to-day responsibilities to someone else, or a medical event may make the decision for you. That’s why you should put a succession plan in place that ensures your hopes for your business – like funding a comfortable retirement or leaving a legacy for your family – are realized. Here are some essential planning items to consider.

Sell it? At some point, sell your business to the highest bidder. Or if you have co-owners, partners or other shareholders, have them buy you out. Be sure you have a buy-sell agreement in place. Speak to your lawyer about putting one in place before you are in a position that you want to sell your business. Alternatively, you could offer ownership to certain key employees. The most difficult task may be setting a value on your business.

Keep it in the family? You’ll have to decide how to finance the transfer. The new owner could purchase an interest in the business but at what value? You might plan on leaving shares to a person, like one of your children, but have you considered if -there are enough other assets in your estate for other children? Do you need to increase your insurance coverage to provide that inheritance?

Wind it down? If your knowledge and expertise is the biggest asset in your business, you may not be able to sell it unless your client list has some value. There are many different aspects to deal with when winding down a business, such as disposing of remaining inventory, giving notice to landlords, creditors and customers and, if your business is incorporated, decide whether to keep the corporation going for tax purposes or winding it up.

Other things to consider: Assessing the tax liabilities of the sale to you, your family or estate; ensuring the growth on your business receives the most favourable tax treatment; considering capping the tax liability on your business through an estate freeze by transferring ownership and future growth of capital assets, usually to your children, now rather than after your death; or placing the business in a family trust that becomes a separate taxable entity and is not included in your estate. When making your succession plan for your business you should consult a lawyer to deal with the legal aspects.

It’s hard to imagine your business without you – but you need to plan for that day now and your legal and tax advisors and professional advisor have the knowledge and perspective to help you make the right decisions for your business and every other aspect of your financial life.