The Power of Patient Investing

by Manisha Thakor

Have you ever been tempted to “play the stock market” by following a hot tip, only to watch your shares plummet? Do you want to invest, but feel overwhelmed by all of your choices? How do you know if you should invest in stocks at all? As a female financial advisor, I hear these questions a lot.

Here’s a powerful, yet simple guideline I personally love: Don’t put money in stocks unless you can afford to leave it there for at least 5 years – and ideally as long as 10 years.

What’s the rationale behind this time frame?

The short answer is that it dramatically increases the odds that you will have a positive return on your investment.

To more fully explain, let’s start with the definition of a stock. A stock is a piece of ownership in a business. If you buy a share of that business at a reasonable price, and the business prospers, over time you can expect the price of your share to go up with the business’ earnings.  The problem is that this relationship is not perfectly linear. In the short run, human emotions like greed and fear are the primary drivers of stock prices. In contrast, over the long term (defined as a 10-year plus period), the key driver of stock prices is the earnings the company is generating.

It’s not so far off from building a classic wardrobe. In any given year, you may have one or two pieces that are in style and a few pieces that are not in style, but over the long run, if you stick with the classics you can stay on track and easily adapt to new trends.

The financial version of doing this is to own a diverse basket of stocks. A common one is called the S&P 500, and represents shares of 500 large US companies such as Apple, Exxon, and General Electric.  How has the S&P 500 performed over time?

We have good stock market data back to 1926. If we were to look at rolling 5-year periods for the S&P 500, we’d find that 86% of the time, stocks generated a positive return. This means that going back to 1926, if you were invested for a five-year period, you had an 86% chance of earning a positive return. To add icing on the cake, the average return of all 5-year rolling periods was 9.8%.

Now, what happens if you stretch the time period out to 10 years?  Since 1926, rolling 10-year returns were positive 95% of the time with an average 10-year return of 10.5%. So, not only did an investor have a high likelihood of earning a positive return, it was also a strong return. But if you look at just individual calendar years, in only 72% of the years from 1926 to 2012 did stocks have a positive return.

Sure, you can trade in and out of stocks over shorter periods of time, but the odds are not in your favor. On top of this, you may incur trading and tax costs that can add up quickly, further diminishing your overall return. While past performance is never a guarantee of future returns, history suggests that a strategy of patient investing gives you a greater chance of success.

[For more MoneyZen in your life, follow Manisha on Twitter at @ManishaThakor, on Facebook at /MThakor, or visit MoneyZen.com.]

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

Generation Earn: A Chat With Kimberly Palmer

by Manisha Thakor

US News & World Report senior editor and personal finance columnist, Kim Palmer, has written an excellent new book for young professionals: GENERATION EARN.  Kim was kind enough to share her thoughts both on the writing of the book and to highlight "5 Money Tips for Today's Young Professionals."

What motivated you to write GENERATION EARN? I felt frustrated with the constant focus on how bad our generation is with money. We’re told that we have too much debt and are clueless about finances, but the fact is, we’ve learned a lot from the recession. We were forced to learn how dangerous debt can be and how important it is to save and understand where your money is. As a result, we probably know more about money than any previous generation did at our age. I wanted to help people with their new goals-- financial security, supporting growing families, and giving back in meaningful way.

What has surprised you the most as you've talked to people about GENERATION EARN? That there has been a huge shift in how young people think about money. We care more about having money in the bank than impressing people with big houses or fancy cars. Financial security is the new measure of success. But that doesn’t mean we’re greedy – in fact, the focus on giving back is a hallmark of our generation. We also want to make sure we’re spending our money in ways that support the bigger causes, from environmentalism to social justice, that we believe in.

What do you know today that you wish you had known 5 years ago about personal finance? That the only way to get ahead financially is to save at least one-third of your income. It sounds impossible, and sometimes it is. But if you don’t start saving that much for your emergency fund, goals, and retirement in your twenties and thirties, it’s just going to get harder later, when you have even more responsibilities. Sometimes that means living in a tiny apartment for a lot longer than you ever thought you would.

5 Money Tips for Today’s Young Professionals... from Kimberly Palmer

  1. Save one-third of your income. Yes, saving such a big chunk of money each month means sacrificing some comforts and indulgences for the short-term, but it’s the only way to get closer to that ultimate goal of financial security.

  2. Don’t scrimp on career-related investments. There’s one area where it’s okay to be a spendaholic, and that’s when it comes to investing in your future earning power. The category includes not only education expenses, but also voice lessons for an aspiring podcaster, how-to books for those with potentially lucrative hobbies, and even a new wardrobe for office workers who need to impress the higher-ups.

  3. Pay off all but your cheapest student loans early. Student loans that carry a 5 or 6 percent interest rate (or higher) are costing you much more than your savings can earn in our current low-interest rate environment. That means paying off a chunk of your loans will immediately start saving you more money than you could if you continue to make those slow and steady monthly payments.

  4. Don’t wait to invest until you have “extra money."Waiting to start a retirement account until you feel like you can afford it might mean you can never retire. Don’t wait to open up a 401(k) account if your workplace offers it, even if you start by contributing just 2 percent of your salary.

  5. Give back – on your own terms. Use Charity Navigator to check up on the background of your chosen organization before donating any money to make sure they’re going to use the money the way you want them to.

What about you - what advice do you have for today's young professionals?

[For more MoneyZen in your life, follow Manisha on Twitter at @ManishaThakor, on Facebook at /MThakor, or visit MoneyZen.com.]

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

Are Your Bonds Safe?

by Manisha Thakor

"Last year I invested in a bond fund and now I've lost money. What happened? I thought bonds were supposed to be safe investments!" 

Recently several people have asked me this same question. Given the turbulent economic times we're (hopefully!) coming out of, it's understandable that folks want to find a "safe investment" to hunker down in.

Alas, the phrase "safe investment" is an oxymoron. The whole point of investing is taking on some risk with the hope, but not the guarantee, of earning a higher return than you'd get from doing something risk free.

So how did bonds get the reputation of being "safe?" Well, at their core, bonds are loans. You lend money for a pre-determined period of time. In return you receive interest at specified intervals. When your loan (a.k.a. bond) matures you get back the money you originally loaned - if the entity hasn't gone bankrupt.

It is the return of that original investment that has caused people to view bonds as "safe" investments. Alas, there are always risks with any investments. The two classic ones for individual bonds are:

  1. Credit Risk: This is the risk that the entity you lend to goes belly up and can't pay you back.

  2. Interest Rate Risk: Bonds are like seesaws. When interest rates go up, the price of bonds go down. If you hold your bond until it matures, the impact is all on paper. But if you are forced to sell your bond before its maturity date and interest rates are higher than when you bought that bond, the price you'll receive will be less than you originally invested.

Another problem with individual bonds is you often need a pretty hefty chunk of change to buy them. This is where bond mutual funds come in. For example, if you had $10,000 to invest you might be able to buy one bond. But by pooling your money with other people's money, bond mutual funds enable you to take that $10,000 and spread it out over many different bonds. That helps you spread out your risk.

However, when individual investors decide to take their money out of a bond fund, the portfolio manager may be forced to sell bonds at less than desirable prices to give them back their money. You could call this liquidity risk. Over the past year, as interest rates have inched up and there have been concerns about credit quality, the price of some bond funds has declined as these risks all reared their heads.

What does this mean for you? It means that like stock funds, bond funds also have some risk associated with them. They should not be thought of as "100% safe" substitutes for FDIC insured savings accounts. Rather, they are intended to be part of a well-balanced portfolio. Another way to keep your risk low is to invest in bond funds that have average maturities of 5 years or less because they seesaw around less violently as interest rates move.

What additional questions do you have about bonds or bond funds?


Want more financial love? You can follow Women's Financial Literacy Initiative founder, Manisha Thakor, on Twitter at @ManishaThakor or on Facebook at /MThakor.

Comment /Source

Manisha Thakor

From Manisha's linkedin profile page:

Manisha Thakor is the Director of Wealth Strategies for Women at Buckingham Strategic Wealth and The BAM Alliance. 

Manisha and her colleagues provide both evidence-based wealth advisory services for high-net-worth households and core asset management solutions for women and families nationwide with $80,000 or more in investible assets. 

An ardent financial literacy advocate for women, Manisha is the co-author of two critically acclaimed personal finance books: ON MY OWN TWO FEET: a modern girl’s guide to personal finance and GET FINANCIALLY NAKED: how to talk money with your honey. She is on Faculty at The Omega Institute and serves as a Financial Fellow at Wellesley College. Manisha is also a member of The Wall Street Journal’s Wealth Experts Panel, a member of the 2015 CNBC Financial Advisor’s Council, and wearing her financial educator’s hat serves as a part of TIAA-CREF’s Women’s Initiative. 

Manisha's financial advice has been featured in a wide range of national media outlets including CNN, PBS, NPR, The Today Show, Rachel Ray, The New York Times, The Boston Globe, The LA Times, Real Simple, Women’s Day, Glamour, Essence, and MORE magazine.

Prior to joining the Buckingham team, Manisha spent over twenty years working in financial services. On the institutional side she worked as an analyst, portfolio manager and client relations executive at SG Warburg, Atalanta/Sosnoff Capital, Fayez Sarofim & Co., and Sands Capital Management. After this she moved to the retail side and ran her own independent registered investment advisory firm, MoneyZen Wealth Management. 

Manisha earned her MBA from Harvard Business School in 1997, her BA from Wellesley College in 1992 and is a CFA charterholder. She lives in Portland, OR where she delights in the amazing Third Wave coffee scene and stunning natural beauty of the Pacific NorthWest. Manisha’s website is MoneyZen.com.

On the 12 Days of Christmas

by Susan Hirshman

As I was driving the other day, the song … On the twelve days of Christmas my true love gave to me….came on the radio.  It made me think – who really is our true love and what is it really that we want.

Who really is our true love?  Well, I am not Dr. Phil but we must first start with ourselves. And what is it that we really want? From a financial perspective most people tell me it’s “ peace of mind.”

So I took a little literary license and came up with a new song for the holidays.

On the 12 days of Christmas I gave to me the best gift of all…peace of mind….

Here are twelve things you should think about and examine

Day 1 – Review your life insurance coverage.  Is it working as projected?  Is the pricing up to date? Is the coverage in line with your needs?

Day 2 – Examine (or create) your retirement goals.  Are the assumptions realistic?  Is it a priority?  Are you on track?

Day 3 – Look at your emergency savings.  Do you have any? Is it liquid? What do you want it to cover?

Day 4 – Review your disability coverage.  Do you have any?  Do you know what your policy covers, for example is it your own occupation or any occupation?

Day 5 – Go thru your estate plan (or lack thereof.) Are the guardians you named for your children still the right choice?  Is the executor the right choice?  Has your life circumstances changed and those changes are not reflected in your will?

Day 6 – Appraise your need for long-term care insurance.  What is your family’s health and longevity history?  Do you have family members that would be willing and able to take care of you in the manner that you choose?

Day 7  - Assess your diet. Studies have found that discrimination based on weight in the work place is more prevalent for women than men, especially white women in professional occupations.

Day 8:  Study your portfolio performance.  Are you an emotional investor? Do you end up buying high and selling low?  How long do you usually hold on to a mutual fund?

Day 9: Take a break from TV.  Reduce your TV watching by less than 8 hours a year and you can gain financial success. Snookie won’t be able to help you but by taking a few hours to get financially educated (read Does this Make My Assets Look Fat? A woman’s guide to finding financial empowerment and success), then take around 5 hours to get organized and develop a plan, and then take an hour 2x a year to review your plan.

Day 10 – Re-evaluate your umbrella policy.  Do you have one?  Is it sufficient? When was the last time you revisited it? Experts report that only 10%of people have the proper umbrella policy.

Day 11: Make sure you are familiar with all your finances. Do you know what would happen to you financially if you were to get divorced? 25% of couples married for twenty years get divorced.  Furthermore, the “grey divorce” (people over 65) is the fasting growing group of people to get divorced

Day 12:  Go over your credit cards.  Understand your interest rates, payment options.  Make sure you are not paying more than you have to.

5D's To Protecting your Portfolio From Sabotage

by Susan Hirshman

The most common response to the question “What are the biggest risks to your financial portfolio?” usually has something to do with market volatility – i.e. the up and down movements of the stock market.

Would your answer be different?  Most likely not, because market risk is what people discuss at cocktail parties, and what business new shows, magazines and newspapers focus their attention on.  Unfortunately, market risk is not the only risk that needs to be managed.  There are 5 other risks to one’s portfolio that must be taken into consideration to ensure that you protect you and your family from financial sabotage.

The five other risk’s I call the 5 D’s.

  • Disability
  • Dementia
  • Death
  • Destruction
  • Divorce

Most people find the thought of one or more of these 5 D’s depressing and painful and avoid it like the plague.  Like so many things in life, ignoring something does not mean that it won’t happen.  So instead of becoming a victim to your fear, become a person of strength and power by addressing these risks and giving both you and your family the gift of financial security and peace of mind (in times of acute stress.)

Let’s briefly look at each of these 5D’s.

Disability -If you became disabled for an extended period of time during your and could not work what would happen to your financial security?  The risk of disability does not get the respect it deserves.  Few people realize that the chances of becoming disabled are greater than dying prematurely.  In fact, it has been reported that by age 42, it is 4 times more likely that you will become seriously disabled than that you will die prematurely during your working years

Dementia – If your physical or mental health deteriorates so that it prevents your from performing the ordinary tasks of life, such as bathing, dressing, eating etc will you have a choice as to how you will be taken care of?  This is especially important for women, since studies show that women face a greater likelihood than men of needing long-term care.

Death – If something were to happen to you during your working years would you want to replace that income in order for your family to maintain their lifestyle and fund their long-term goals? The risk of premature death for those in their typical working years, ages 25-64, is still significant - a greater than 1-in-6 chance for males and a 1-in-9 chance for females of not surviving from age 25 to normal retirement age. These odds are much higher than most Americans perceive,

Destruction –Catastrophic events like fires, floods, tornadoes etc are not under our control and we can’t predict when they will occur.  But when they do, they can be disastrous to your property.  For most of us, our home is our most valuable assets and studies show that most people are underinsured.  Are you?

Divorce – It happens.  It’s hard to think about it going in but unfortunately the divorce rate in the US is still at 50% and the average length of first marriages that end in divorce is 7 years.  You must take this into consideration before, during and after your marriages.

Ignorance in any or all of these cases is far from bliss; it is financial suicide.  Know what you are up against and have the right tools in place to protect your finances from sabotage.  Your investments plan means nothing if your “risks of life” are not managed and protected well.  Don’t let yourself be a victim.

5 Things You Should Know Before You Buy a Stock or Fund

by Stacy Francis, CFP®, CDFA

A friend of mine is an aspiring author, and eventually wants to leave her corporate job. Over bouillabaisse and freshly baked baguettes the other night, she announced that she just sold her first short story, to an Ezine. All smiles, she explained what an important step this is for her writing career since, as she put it, now she’s googlable. This very versatile new verb got me thinking about the many, many ways the Internet helps investors. Just imagine the amount of information now at our fingertips; information to which, as little as fifteen or so years ago, investors had very limited access. Below are a few googlables to consider before you buy a stock or fund.

1. Essence. What does the company (or companies, in case of a fund) do? My general advice is that if you don’t understand the business, you shouldn’t bet your money on it. To stomach the ups and downs in the markets (especially today), you have to feel good about your investment.

2. Sales. Are whatever products and/or services the company produces actually selling? If they are gathering dust in a warehouse, chances are your money will, too.

3. Cost control. A $10,000,000 golf retreat for the executive staff is hardly effective use of your capital. Put it to work elsewhere.

4. Debt. People aren’t the only ones who suffer when overwhelmed with debt. Find the leverage ratio (calculated as total assets divided by shareholder equity) for the company (or companies) you’re considering. If it is higher than 5, reconsider.

5. Bad news. Nothing spreads faster than bad news. If there’s anything fishy going on, chances are somewhere on the World Wide Web, someone picked up on it.

Comment

Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Spring Cleanout of Your Investment Portfolio

by Stacy Francis, CFP®, CDFA

I love this time of the year! Trees painted in that fresh, new green, baby birds chirping in the trees, and a sense of excitement in the air. I spent last Saturday preparing my closet for spring and summer: warm, heavy jackets making room for light summer coats, sweaters yielding for shorts and dresses, and boots replaced by cute sandals and heels. Of course, I also had the opportunity to donate the old items that no longer fit (size or fashion wise) to a lovely charity, and to pick up a few new ones – you know, the kind that gives your entire closet a facelift and makes every outfit feel brand new.

For those who haven’t yet gotten around to it, this is the time to clean out your investment portfolio as well. Schedule an appointment with your financial planner to discuss the following:

1. Is all or a portion of your capital invested in a fund, industry, market or company you no longer believe in? If so, it may be time to toss! The same applies if a fund has gone through a shift in management or style that you feel is for the worse. You can access this information in annual reports – or through google!

2. Monitor the Morningstar ratings for your funds, albeit not religiously. The score (one through five) will tell you how well a fund is doing compared to similar funds and relevant indexes – not how good of an investment it is overall. This is why it is crucial to do your own research as well. A two star-rated fund in an upcoming industry may be a better option than a four-rated one invested in a troubled sector. And with this in mind . . .

3. Have any new industries, companies, funds or markets sparked your interest lately? Have you done your research and feel fairly certain they’ll do well in the future? You may want to send some of your dollars in that direction!

4. Do you need to be more conservative, or could this be an opportunity for you to speculate a little? Your investment strategy should change not only with age (typically, the older you get, the more conservative it should be), but also with new market circumstances. If you are young and have plenty of time still, you may want to take advantage of this opportunity to pick up stocks and mutual funds invested in stocks for less.

Comment

Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

The 8 Characteristics of a Successful Financial Plan

by Stacy Francis, CFP®, CDFA

Having a financial plan in place means more than just having a good asset allocation or some insurance to protect the people you care for.  No matter what plan you have in place, it is recommended that you sit with an experienced planner/advisor and make sure that YOUR financial plan includes ALL of the following 8 characteristics;

  1. Consistent flow of money into the plan.  It isn’t enough to randomly “feed” your plan and rely on portfolio returns.  Consistency breeds stability and predictability when it’s time to “reap”.

  2. A fair rate of return as it pertains to your individual plan objectives and risk tolerance.

  3. Minimum tax consequences while you are building your plan.

  4. Minimum tax consequences while you are reaping the fruits of your labor.

  5. Access to your money.  Your plan will most probably include different “buckets” of money.  Some intended for short term objectives and some for longer term objectives.  When an objective is reached the funds set aside for it should be easily accessible.

  6. Minimum risk.  If you have gone to the trouble of putting together a well thought out plan, don’t try to accelerate your progress by taking more risk than you have to in order to accomplish the goals you set out for yourself with the help of your planner.

  7. Provide for emergencies and unpredictable events.  “Life happens!”

  8. Flexibility to change and adjust as your life does.

Your plan will stand the test of time and will reward you well if you and your planner take care to include each and every one of the above.  If you cut corners or leave out any of the above, your plan will at some point fall short. 

Happy Planning!  

Comment

Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

5 Things You Should Know Before You Buy a Stock or Fund

by Stacy Francis, CFP®, CDFA

A friend of mine is an aspiring author, and eventually wants to leave her corporate job. Over bouillabaisse and freshly baked baguettes the other night, she announced that she just sold her first short story, to an Ezine. All smiles, she explained what an important step this is for her writing career since, as she put it, now she’s googlable. This very versatile new verb got me thinking about the many, many ways the Internet helps investors. Just imagine the amount of information now at our fingertips; information to which, as little as fifteen or so years ago, investors had very limited access. Below are a few googlables to consider before you buy a stock or fund.

  1. Essence. What does the company (or companies, in case of a fund) do? My general advice is that if you don’t understand the business, you shouldn’t bet your money on it. To stomach the ups and downs in the markets (especially today), you have to feel good about your investment.
  2. Sales. Are whatever products and/or services the company produces actually selling? If they are gathering dust in a warehouse, chances are your money will, too.
  3. Cost control. A $10,000,000 golf retreat for the executive staff is hardly effective use of your capital. Put it to work elsewhere.
  4. Debt. People aren’t the only ones who suffer when overwhelmed with debt. Find the leverage ratio (calculated as total assets divided by shareholder equity) for the company (or companies) you’re considering. If it is higher than 5, reconsider.
  5. Bad news. Nothing spreads faster than bad news. If there’s anything fishy going on, chances are somewhere on the World Wide Web, someone picked up on it.

 

 

Comment

Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

The Fear Factor: The True Cost of Emotion-Based Investment Decisions

by Stacy Francis, CFP®, CDFA

I am very intuitive, said a new client over raw food downtown yesterday. Thank goodness I can finally eat Sushi again. While I was pregnant this food was strictly off limits. Anyways, my client told me that she always listens to her gut when determining when to buy and sell. It has never been wrong in any other aspect of her life, yet she keeps losing money. Any idea why this could be? 

I do have an idea, and I think it’s important enough to mention to the rest of you as well. The reason following her gut in investment decisions is getting my new client nowhere is that gut feeling is a biological function designed to keep you safe. So when things start to get shaky in the markets, it will tell you to pull out. When indexes start to head north again and others around you start to make money, it will pick up on their sense of security and conclude that it is safe for you to re-enter.

In essence, you will end up buying high and selling low – one of the worst investment strategies imaginable. Statistics show that it is not unusual for investors who move in and out of the markets to underperform major indexes with 1.5 points.  

I’m not saying you should ignore your gut, because it is useful in so many other aspects of life. Sometimes, it can be a lifesaver! But when it comes to investing, it’s all about the rational. Draft a long-term strategy, stick to it, and - with the exception of your annual or bi-annual portfolio review - leave your money alone. You are much better off using that gut feeling to improve other aspects of your life.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

5 Reasons Why the Recession Rocks!

by Stacy Francis, CFP®, CDFA

The conference I attended last week was a study in pessimism and negativity. I feel that right now, people are paying far too much attention to the negatives and far too little to the many wonderful aspects of the current financial situation. For inspiration, see below!

  1. We save more. For ages now, Americans have been living on plastic, spending far more than we earn, not giving tomorrow that much thought. When faced with fears of financial hardship, we start to set cash aside for emergencies – a first, staggering step toward a sounder financial future.
  2. We get ourselves out of debt. It may seem controversial: how are we supposed to pay down debt when we make less money? But statistics show that Americans are now shredding debt instead of adding to it – for the first time in ages.
  3. Investments become cheaper. Stocks, mutual funds invested in stocks, real estate – it seems these days, bargains are everywhere! True, many people have suffered immeasurable losses . . . but always remember that there are two sides to every trade. For every person selling a house at a loss, there’s another person buying it at a discount. If you have the money, this is a fabulous time to invest.
  4. We learn to prioritize. When money is easy come, easy go, we can have it all. When the supply is cut short, we are forced to set priorities and differentiate real needs from fluff. This will enable us to get more out of our money once we head for the next boom.
  5. We discover what really makes us happy. It is all so easy. We take a job we never really wanted because we need the money. We get a couple of promotions and raises, and adjust our lifestyles accordingly until we are completely dependent upon our income. Meanwhile, our dreams and passions slip further and further away. When we are thrust out of that security blanket and realize that we can survive on much less, we get another chance to give those dreams a go.

Personal Money Management: Dos and Don’ts

by Stacy Francis, CFP®, CDFA

What a day! I met with a total of six different clients, updating their portfolios and helping them set financial goals for the new year. This is what I love the most about this time of the year: change is in the air, and people want to know what they can change in order for this year to bring them closer to their financial goals and dreams. While the unique circumstances – and actions needed – are different in each case, below is a list of general money management dos and don’ts:

  1. Don’t cease to contribute to your retirement accounts no matter how the market is performing.

  2. Do make sure you have emergency cash at hand – aim for six months worth of living expenses.

  3. Don’t try to predict the future. We are all tempted to do it – but believe me, you are better off spending your time and energy on improving your own situation.

  4. Do save. One good thing about the recession is that it makes us think twice about overspending. You now need your saved dollars more than ever.

  5. Don’t give up on the stock markets. With prices for stocks and mutual funds invested in stocks the lowest in years, this is also the best buying opportunity in a decade.

  6. Do invest internationally. Not only do the fundamentals look better for a good deal of developing markets than for the US, but it is also a wonderful way to diversify your portfolio.

  7. Don’t put all your eggs in one basket. Diversify.

  8. Do track your spending. Most people have an Achilles heel – one area where they literally leak money. Finding this Achilles heel and becoming aware of it can make all the difference for your financial future.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Tax Breaks for Your Investment Losses

by Stacy Francis, CFP®, CDFA

My girlfriend called me up last night. “So,” she told me, “I was seconds away from selling these bonds I have so that at least I’d get a tax write-off, when I realized that’s not how it works with bonds. If I hold them until maturity, I will get my money back, won’t I?” I was so proud of her! She remembered! A major difference between stocks and bonds is just that – bonds have a maturity date, while stocks don’t. This is part of the reason bonds are considered “safer” investments. 

If my friend had owned stocks, her thinking would have been very strategic. Many investors sell stocks that are down just before the end of the year, and use the capital loss to lower their tax bills. This is a great idea for stocks, but does not work as well with bonds. 

In the case of mutual funds, things get a tad bit more complicated - or complex, perhaps. The fund managers buy and sell securities now and then, and unless you keep a very close eye on the fund, you will be notified via mail whether you are entitled to a tax write-off or owe the IRS money. Since the fund managers may have bought securities several years ago and sold them during the past year, it is possible that you will have a taxable capital gain even when your fund is down. Conversely, it is also possible that you will be able to do a tax write-off even though your fund is up.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Retirement Savings Dos and Don’ts

by Stacy Francis, CFP®, CDFA

I had dinner with my best friends last night – a monthly tradition that usually turns into a full night of fun. Not this time, however. It turned out my friends were all in a state over their retirement accounts. Their mutual funds invested in stocks were trading at lousy prices, they couldn’t find any decent-priced income generating securities anywhere, and when it comes down to it, what’s the point in investing anyway if your account value can get cut in half?

We covered so many savings and investment basics that night - over Spaghetti Carbonara and Tiramisu - I thought I should share.

  1. Ceasing to contribute to your retirement account is a don’t. With many nest eggs now considerably smaller, adding money is more pressing than ever.
  2. Rebalancing your portfolio is a do. The investment climate is much different now than, say, a year ago. Your portfolio should reflect this.
  3. Buying income-generating securities, such as mutual funds invested in bonds, is a don’t. Why? Because with every investor on the planet rushing to buy them, yields are infinitesimal and you won’t make money. It is much better to wait until the public has recovered from the shock and is rushing to buy securities with more risk exposure – thenyou can score yourself much higher yields.
  4. Shifting your investment strategy toward mutual funds invested in stocks is a do. Have you ever heard the expression “buy low, sell high?” I thought so. With the lower stock prices today, the downside to buying such securities is much smaller.
  5. Thinking long-term is a do. True, short-term forecasts are looking pretty ugly. But if you apply a long-term perspective, things immediately brighten up. After recession follows economic growth and boom. Always. If you keep this in mind, you can make smart investment choices. Just as the falling real estate prices are only going to hurt those who need to sell within the foreseeable future, the fact that stocks and mutual funds are trading for practically nothing won’t hurt your savings unless you are trying to get rid of them.

 

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Selecting Your Stocks: Technical Analysis

by Stacy Francis, CFP®, CDFA

In the last entry, an email I received inspired a discussion about fundamental stock analysis. This entry covers its counterpart, technical analysis.

According to technical analysis, value is truly in the eyes of the beholder. Rather than paying attention to the book value of a company, technical investors define a company’s worth as whatever people are willing to pay for it. Technical investors therefore spend as much time analyzing charts as fundamental investors do perusing balance sheets and income statements. According to technical analysis, stock prices tend to follow certain patters -- some long term and others shorter term. The price for a certain stock can be in a short-term upward trend even while in a downward trend overall. So if the charts look right, a stock trading for ten times its market cap may very well be a good buy.

It is impossible to say which out of the two works the best. There are investors who make billions using either, and investors who lose everything they own and then some. What I can say, though, is that the problem with either type of analysis is that they assume investors think and act rationally. If a company’s assets are worth a certain amount, fundamental investors trust that’s where the price is eventually going to settle. Similarly, if the price of a stock breaks through a certain resistance point, technical investors almost take for granted that it is going to climb for a while. The problem here is that -- as you know -- most people are not rational especially in the stock market. It is therefore extremely difficult to predict their behavior; what makes them buy or sell a stock and when. So while both techniques bring valuable information to the table, it is important not to take them too literally.

 

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

Selecting Your Stocks: Fundamental Analysis

I got an email from a client this morning, raving about this exceptional new stock everyone was talking about. It had already tripled since going public, and all the charts looked amazing.

Curious, of course, I went online to do some research. The company was in the mining industry, and had one early stage project, which, if everything worked out according to plan, would bring home a cash flow worth around $3,500,000. The market capitalization (the current price per share times the number of shares outstanding) was $40,000,000. Basically, the company was trading for more than ten times its worth, and yet this woman considered it an exceptional investment.

This is an excellent example of an instance where the two main schools in stock evaluation -- fundamental and technical analysis -- contradict each other. For someone who selects stocks using fundamental analysis, which deals with the book value of a company (its assets, in whatever form they come), buying this stock would be absurd. To the fundamental investor, companies trading below the value of its assets are good buys, whereas companies trading above this number are no-gos. And a company trading for ten times the highest possible value of its assets . . . well, you get the picture.

For a person using technical analysis, however, it could make perfect sense. In my next blog entry, I will explain how.

Note that selecting your stocks should follow this blog on the next day.

 

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.

What Are Stock Options and How Do They Work?

by Stacy Francis, CFP®, CDFA

This question popped up during a recent Savvy Ladies meeting. This Savvy Lady saw an advertisement on the internet for a course called Stock Options for the Savvy Trader – Make Millions With Little To No Risk. Should she sign up? It seemed like it might be to good to be true. Well, you’re right. This class is not all it says it is. While frequently referred to among investors, few truly grasp what stock options are. I will provide the basics below.

As the owner of a stock option, you have the option (but not the obligation) to either buy or sell a certain stock at a certain price. A call option gives you the right to buy a stock at a certain price, whereas a put option grants you the right to sell a stock at a certain price. Hence, call options can be great buys when you expect a stock to go up, while put options can be great buys when you expect it to go down.

How? Well . . . if you bought an option a while back, to buy a certain stock for $50, and that stock now trades at $60, you can exercise the option and buy the stock for $50, turn around and sell it for $60, and walk away with a profit of $10 minus what you paid for the option.

If, on the other hand, you bought a put option a while back, to sell a certain stock for $50, and the stock now trades at $40, you can buy stock in the market for $40, exercise your option and sell it for $50, and – again – make $10 minus what you paid for the option.

The worst thing that can happen when you own options is that they become worthless and you lose whatever money you put into them. This will happen for call options when the price of the stock goes down, and for put options when the price of the stock goes up.

Sophisticated investors sometimes create extra income for themselves by writing and selling options on the stocks they own. But that is a whole other chapter that we will save for later.

Investing More or Paying Down Debt?

by Stacy Francis, CFP®, CDFA

At a recent get-together at my parents house, one of their friends was excited to tell me his company had given him a substantial bonus – one that far exceeded his expectations. Thrilled to have a financial expert at the party, he asked whether I thought he should invest the money, or use it to pay down debt.

This is a brilliant question, and one that is fairly simple to answer. It depends on the cost of your debt, as well as the return on the investment you are considering. Some types of debt, like credit card debt, are expensive, so if you have them you should definitely use the money to pay them off. I know it sounds boring, but you will be happy later, when financing charges stop eating half your paycheck.

Other types of debt, such as student loans and mortgages, tend to have fairly reasonable rates and long payback times. Hence, you may be better off investing the money than paying them off. Say, for instance, that you pay 6% interest on your mortgage, and the yield from the investment you would like to try is 8%. In this case, depending on what kind of risk comes with the potential investment, you may be able to walk away with an extra 2% per year if you invest the money rather than dumping it into your home.

As all the debt my parent’s friend had was a low-interest mortgage, he decided to invest the money – after treating himself to a cruise with his wife. After all, life’s supposed to be lived. As for you, next time you come across a larger-than-expected sum of money, compare rates. The answer to this question is simply mathematical.

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Stacy Francis, CFP®, CDFA

Stacy Francis is the Founder, CEO and President of Francis Financial, Inc., a Wealth Management and Financial Planning firm. With over 18 years of experience in the financial industry, she is a CERTIFIED FINANCIAL PLANNER™ (CFP®), a Certified Divorce Financial Analyst™ (CDFA™), and a Certified Estate Planning Specialist (CES™). She is the Co-Director of the Association of Divorce Financial Planners’ (ADFP) Greater New York Metro Chapter and a member of the Women Presidents’ Organization (WPO) and an honoree member of the Private Risk Management Association (PRMA). A nationally recognized financial expert, Stacy has appeared on ABC News, CNBC, CNN, PBS Nightly Business Report, The Today Show, Good Morning America, Fine Living Network, and The O’Reilly Factor. Stacy attended the New York University Center for Finance, Law and Taxation.