George Washington's First Thanksgiving

Financial Lessons from Thanksgiving


By Steve Davis, CERTIFIED FINANCIAL PLANNER™

President George Washington designated November 26, 1777 as the first Thanksgiving Day recognized by the US government. In the years that followed, each state scheduled its own Thanksgiving holiday at different times, until Abraham Lincoln made it an ongoing National holiday. His proclamation read, “I do therefore invite my fellow citizens in every part of the United States, and also those who are at sea and those who are sojourning in foreign lands, to set apart and observe the last Thursday of November next, as a day of Thanksgiving and Praise to our beneficent Father who dwells in the Heavens.” For most of us, Thanksgiving goes by in a blur of family, friends, holiday preparations, and a table of traditional dishes. The story of the first Thanksgiving was very different from our own and holds important lessons for us today.

The Fruit of One’s Labors:
After landing on our shores, life was almost unbearable for the Pilgrims for the first few years. Crop yields were poor and many went hungry. William Bradford, the Governor of Plymouth Bay Colony later reasoned that the old English tradition of farming in common – where the harvest was collected and rationed based on need – led to a lack of productivity. It seems that some of the colonists resented not receiving a share of the harvest proportional to their labors. When Bradford decided to abandon farming in common in the spring of 1623, things changed. He set aside a plot of land for each family as their own private property to supply themselves with corn. The result was a bountiful harvest. The idea of enjoying the fruits of one’s own labor caused productivity to soar. Bradford wrote, “It made all hands very industrious, so much more corn was planted then otherwise would have been by any means.” And so, in the fall of 1623 Governor Bradford “set apart a day of thanksgiving.”

Recover from Mistakes:
When the Pilgrims first packed their belongings into trunks and crossed the rickety wooden gangplank onto the deck of the Mayflower, they were setting sail much later than they had originally planned. Instead of reaching their planned destination in Virginia, they found themselves hundreds of miles off course. They anchored in Massachusetts and braved a frigid first New England winter and then suffered three years of near starvation. Many would curse their bad luck and consider giving up, but not these hardy souls. The Pilgrims accepted the things they could not change and adapted and adjusted to their unforeseen and new conditions. How do we respond to setbacks? If you have experience investment losses, or if you’ve racked up too much credit card debt, or if you’ve made some bad career moves, resolve to recover and bounce back. We can learn from the Pilgrim’s example and ability to overcome.

Weather Hardships:
The men and women that first landed on these shores back in 1621 were not seasoned explorers or soldiers; they were mostly a group of religious Separatists who held regular jobs. They were farmers and printers and shoemakers with no experience or knowledge in establishing a settlement in an adverse land. During that first traumatic winter, half the pilgrims died.


And here we are, almost 400 years later, living in vastly different times. Still, human hardship remains. People get sick, loved ones die and we sometimes struggle because of unemployment or any number of other life events. The Pilgrims were a small group who leaned on each other and their Native American allies. What is your support network like? As you gather with your family and friends this week, take time to develop and appreciate the ability you have to offer support and guidance to one another.

Move Ahead:
Those first years in Plymouth must have been dreadful. Of course they didn’t have consumer confidence surveys back then so we don’t know the sentiment in the early 1620s. Eventually, the fledgling colonial economy became so successful that Governor Bradford wrote these words 24 years after the first Thanksgiving, “Any general want or famine has not been amongst them since to this day.” Years of abundance followed the first few hard winters. Eventually the colony produced enough corn to spare and trade for other comforts and enjoyment.

What about today? According to Bloomberg Consumer Comfort Index, confidence hovered last week near a record low. However, unemployment is slowly improving, businesses generally have good balance sheets and profits have been boosted by cost cutting on everything including capital spending and inventories. While the economic data doesn’t point to robust economic growth, the economy is expanding. It is my hope that soon workers will be enjoying the fruits of their labors with years of abundance.


Give Thanks:
Before you enjoy your meal this Thursday, perhaps you might like to share the words of President George Washington with those at your table. Here is his Thanksgiving Proclamation from October 3, 1789:

     Whereas it is the duty of all nations to acknowledge the providence of Almighty God, to obey His will, to be grateful for His benefits, and humbly to implore His protection and favor; and Whereas both Houses of Congress have, by their joint committee, requested me to “recommend to the people of the United States a day of public thanksgiving and prayer, to be observed by acknowledging with grateful hearts the many and signal favors of Almighty God, especially by affording them an opportunity peaceably to establish a form of government for their safety and happiness:”
     Now, therefore, I do recommend and assign Thursday, the 26th day of November next, to be devoted by the people of these States to the service of that great and glorious Being who is the beneficent author of all the good that was, that is, or that will be; that we may then all unite in rendering unto Him our sincere and humble thanks for His kind care and protection of the people of this country previous to their becoming a nation; for the signal and manifold mercies and the favorable interpositions of His providence in the course and conclusion of the late war; for the great degree of tranquility, union, and plenty which we have since enjoyed; for the peaceable and rational manner in which we have been enable to establish constitutions of government for our safety and happiness, and particularly the national one now lately instituted for the civil and religious liberty with which we are blessed, and the means we have of acquiring and diffusing useful knowledge; and, in general, for all the great and various favors which He has been pleased to confer upon us.
     And also that we may then unite in most humbly offering our prayers and supplications to the great Lord and Ruler of Nations and beseech Him to pardon our national and other transgressions; to enable us all, whether in public or private stations, to perform our several and relative duties properly and punctually; to render our National Government a blessing to all the people by constantly being a Government of wise, just, and constitutional laws, discreetly and faithfully executed and obeyed; to protect and guide all sovereigns and nations (especially such as have shown kindness to us), and to bless them with good governments, peace, and concord; to promote the knowledge and practice of true religion and virtue, and the increase of science among them and us; and, generally to grant unto all mankind such a degree of temporal prosperity as He alone knows to be best.
     Given under my hand, at the city of New York, the 3d day of October, A.D. 1789.

The High Cost of Weddings: 4 Consequences to Newlyweds

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™



My wife and I have four children – all boys – and I used to joke that this was a strategic financial planning decision because it meant that we wouldn’t need to pay for any wedding expenses in the future.

The short-lived Kardashian celebrity wedding covered by the E! Network was said to have cost $10 million. And TLC’s “Say Yes to the Dress” routinely shows brides and their parents forking out tens of thousands of dollars for a dress. According to Bride Magazine, the average cost of a wedding in 2010 was $26,501. Sure, that’s chump change next to the Kardashian debacle, but seriously, 26 grand? Are you kidding me? These days the average cost of a wedding almost makes a year at Northeastern University affordable.


Running of the Brides at Filene's Basement


The news gets worse for frugal brides: just last week Filene’s Basement filed for bankruptcy protection. For years, Filene’s advertised an annual bridal sale where dresses sold for $249 to $649 – a huge markdown from full retail prices of $900 to $9,000. Now that the 102-year-old retailer is closing its doors, their annual “Running of the Brides” event is a thing of the past.

The cost of dresses, photographers, caterers, flowers and honeymoon all add up.  So what kind of impact does this sort of expense have on newlyweds? Here are four consequences:

1. Debt.
Some couples start their marriage deeply in debt. Sure, it’s not unusual for most twenty-somethings to have school loans to pay back, but adding debt to pay for an expensive wedding compounds the problem and often strains a couple’s resources and adds stress to a young marriage.

Couples can avoid wedding debt by listing what they really want and identifying what they can do without. Learning to prioritize is a key financial skill for couples to develop. What is more important... to have a down payment on a house or a big wedding with a costly open bar? If you can afford both, great! If not, make some concessions: invite fewer people, change the venue, use a DJ rather than a band. In all cases, couples should make a budget and avoid wedding debt by putting money aside. The old wedding custom of “something borrowed something blue” wasn’t referring to bank or credit card debt.


2. Lost Opportunity.
The biggest cost of a wedding isn’t the actual dollar spent on the event itself. It’s all the money you could have accumulated if it were saved instead. Economists call this “Opportunity Cost”. Here’s a hypothetical example using a 25-year old bride who invites fewer people to her wedding and consequently cuts her wedding expenses by $10,000. If she saves that $10,000 over her working life of 40-years, her savings could grow to more than $70,000 assuming a five percent interest rate. Some would say that the true cost of inviting the extra guests wasn’t $10,000, but $70,000.

3. Obligation to Dom and Dad.
I often advise parents that they should not create a retirement problem down the road by trying to solve a wedding funding problem for one of their kids today. According to wedding planners, the tradition of having the bride’s parents pay for everything is slowing fading away. Why? Because newlyweds realize that if mom and dad can’t afford to pay for their own retirement, they’re going to have to have to invite mom and dad to live with them, or pay for their assisted living.


4. Crime?
Here’s a weird story. Earlier this year, police say that one Pennsylvania couple resorted to crime in order to pay for their wedding. April Carter, 24, and Joseph Russell, 23, allegedly stripped more than $7,000 worth of copper wire from 18 utility poles and then sold it to a salvage company. PennPower officials inspected the area and found that transformer ground wires had been cut. Surely there are better ways to plan and pay for a wedding than resorting to theft! I can’t imagine that spending a honeymoon in the clink would be much fun either…

Furious about Fees -- Bank charges go up again

By Steve Davis, CERTIFIED FINANCIAL PLANNER™


Outraged about bank fees? You’re not alone. Citizens Bank recently started charging me $3 per month to mail my monthly bank statement. Bank of America recently announced they would soon start charging $5 per month for using their debit card. And just last week three large banks were sued for allegedly colluding to fix ATM fees. Add to these costs, overdraft fees, phone transfer fees, inactive account fees and you’ll see that it’s a veritable fee for all! According to an April study by the Pew Charitable Trust, checking accounts at the 10 biggest U.S. banks had a median 49 different types of fees.

Infamous Banker Ebenezer Scrooge 
from Walt Disney's A Christmas Carol 

So what’s going on? The problem is that banks are finding it more difficult to make money the old fashioned way. Loans aren’t as profitable as they used to be -- interest rates are at historic lows. Additionally, a new law caps the amount banks can charge merchants, from an average of 44 cents per debit card transaction to 24 cents. According to JPMorgan, this new law will cost them $300 million each quarter in income. Sadly for consumers, the banks have turned on them to recoup the revenue.


Here are 5 tips to help you avoid rising bank fees


1. Talk to your bank: You may qualify for free checking if you sign up for direct deposit of your paycheck, use your debit card a certain number of times, or keep a minimum balance. It’s not always easy for consumers to get clear information about bank fees so make a point to call or sit down with your branch manager and ask.


2. Don’t Use Out-of-Network ATMs: Why tolerate high ATM fees? It is not uncommon for consumers to sometimes pay twice for one ATM transaction – first your bank charges you $2 and then if you’re using an “out of network” ATM, the ATM owner charges you another $2 surcharge. That’s crazy, especially when you’re withdrawing $40 for a night out on the town.

Make a point of using your own banks ATM and withdraw enough cash to last you until you can get to the “free” machine again. If you find yourself without enough cash, get cash back at the point-of-sale when using a debit card. Go to a grocery store or any other retailer that would give you cash back. Buy a small snack if you don’t need to buy anything else. Heck a $1 can of soda or bag of chips is cheaper than $4 in ATM fees; plus you get to enjoy the snack!


3. Go Paperless: You can save money and often avoid statement fees, fees for copies of cancelled checks and other costs by choosing to receive your statements online, or by email.


4. Avoid Penalties: One way banks are trying to recoup revenue is by increasing penalties for bounced checks and late credit card payments.

The Overdraft or the NSF fee is one of the most expensive fees banks charge. The very best way to avoid this is to manage your checking account wisely -- reconcile your account each month and develop a system so you don’t forget to deduct ATM or check payments. If you don’t already have overdraft protection, be sure to apply for this feature. If approved, the bank will link your checking account to a line of credit so overdrafts are paid. You’ll still pay a fee for this service, but it’s a lot less than a bounced check fee.

Similarly, late payments on credit cards are brutal. Miss the due date by even one day and don’t be surprised to see a $35 late payment charge. One easy way to avoid these mistakes is to set up a monthly payment (EFT) that will be automatically deducted from your checking account each month.


5.  Change banks: A recent Facebook campaign organized by the Occupy Wall Street movement is urging Americans who are fed up with escalating bank fees to close their accounts at the large banks (especially the ones that took federal bailout funds) and move their money to small banks or credit unions by November 5.

But switching bank accounts isn’t easy, especially if you use direct deposit, have set up electronic funds transfers to pay for your gym membership or have set up online bill payment. Still, many small banks and credit unions are seeing a flood of new depositors. According to Jim Rice, Senior Vice President at Harbor One Credit Union, “Over the last several months, we have seen a noticeable lift in new account sales as a result of consumer frustration with big bank fee increases."

Keep in mind that fees should not be the sole determinant to whether you stay at your existing bank or not. Personal service, branch location, the size of the ATM network and a variety of other factors should be considered before making a change. As in life, it’s not usually a good idea to make decisions purely on emotion.

Quartery Review: Third Quarter of 2011

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

I’ve been reviewing my clients' September 30 investment statements and I’m sure you have received your copies by now too. If you're a local reader and would like to review your accounts together or would like to recieve a second opinion from an independent financial advisor, please contact me. In the meantime, this post will attempt to provide perspective on the economy and financial markets over the past 90 days.


Tug-o-War

Growth vs. Sentiment

If there was one thing that jumped out at most investors during the third quarter, it had to be the huge swings in the market. Over half the trading days in the period saw the Dow Jones Industrial Average move more than 100 points in either direction. It was like a tug-o-war: On one side was the strongest quarter of economic growth this year and on the other side was increasingly negative investor and consumer sentiment.

Economic Growth: While the economic data doesn’t point to robust economic growth, the gross domestic product (GDP) is increasing. In the second quarter, GDP was up 1.3% and the third quarter is on pace to grow at a 2–2.5% rate, the strongest growth rate so far this year. Furthermore, the Index of Leading Economic Indicators (LEI) suggests continued slow growth and that a recession is unlikely. Still, the economy is expanding at a pace that is well below historical averages at this point in an economic recovery. 1

Investor and Consumer Sentiment: For some, the slow pace of growth probably feels like a recession. Despite the lack of recessionary indicators, consumer sentiment was at near 30-year lows and this pessimism overwhelmed the market in the third quarter. 2

  

Market Performance
The third quarter was ugly with extreme volatility and the sharpest decline since the first quarter of 2009. The main drivers of the decline seem to have been European debt worries and the waning confidence on both Main Street and Wall Street as analysts began to second-guess the recovery.

 

Below are results for key markets. These are in local currencies, so the effect of swings in the dollar is not reflected.

Source: MSCI


Looking Forward
So that’s what’s behind us – the key question is what’s ahead. What will have to happen to help this market climate improve in the coming months? There are three potential catalysts that might emerge.  

1. A decisive and truly unified effort by the EU to address the debt crisis.
2. A strong corporate earnings season featuring frequent, pleasant surprises.
3. A stream of data vouching that the economy is still growing.

Historically, the fourth quarter tends to be a very good one for Wall Street. Over the last 50 years, stocks have gained an average of 3.6% in the last three months of the year. 3 While the past is no predictor of future results, we can hope the historical pattern repeats in 2011.

Economic challenges and market volatility remain it is important to remain cautious.  But for those investors who need growth to achieve their long-term goals, it is equally important to take a longer view and know that fund managers are seeing many outstanding companies available at inexpensive prices.  For investors with cash on the sidelines, now may be the time to start putting some of that money to work. 

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.  The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
 1. Source: Bureau of Economic Analysis, Haver Analytics 10/02/2011 


2. Source: University of Michigan Consumer Sentiment Report 09/14/2011 
3. Source: usatoday.com/money/world/story/2011-10-03/world-markets-down/50640738/1 [10/04/2011]

Financial Routines for Financial Success

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


There’s a different routine in my house these days. I’m writing this on the first day of school for my younger two boys and over the past few weeks my older two sons have gone to their respective colleges (VCU in Richmond and MassArt in Boston). The lazy days of summer are over and the kids are going to bed early and getting up at the crack of dawn. And with the older boys out of the house, there is no more having to wait up until they’re safely in the driveway after a night out with friends. It’s great!

For many families, the beginning of the school year marks the start of new routines -- packing lunches in the morning, extra-curricular activities in the afternoon and homework at night. At dinner tonight, our family talked about the day’s events and about the changes to our schedules and routines. We spoke about how success in the classroom often starts with having a good attitude toward school. And this got me thinking about personal finance and how simple changes in one’s attitude and routine can often have a profound effect.



Eat Your Brocolli



A lot of people view personal finance as complete drudgery, a task to be avoided in favor of … pretty much anything else in life. For folks who keep that negative attitude, personal finance success will be very difficult. Instead, we should view it as a personal challenge – just like eating our broccoli. Who knows, if you go into it with a positive attitude, maybe you’ll find it isn’t that bad after all. It took me a long time, but I finally realized broccoli doesn't taste so bad; in fact, I think it's delicious.

 

Perhaps you’ve got the equivalent to cold broccoli sitting on the corner of your empty dinner plate. I can’t begin to tell you how many people I meet who have sizable amounts of money saved up in their old company’s 401k plan, but who never really pay any attention to the portfolio; it just sits there neglected. Simalarly, you'd be surprised at how many times bank CDs get automatically rolled over at ridiculously low interest rates just because individuals don’t take the time to explore their options. If you’re ready to start a new financial routine, you need to start with a checkup.  

Create Habits to Handle Personal Finance

Take a moment and think about how you currently handle your personal finances. Do you have a system for paying your bills on time? Letting a bill sit on your desk even one day too long can cost you in hefty late payments or lost discounts. How about your investments? Do you check your portfolio regularly and know what you’re investing in? What about the way you budget for vacations or big ticket purchases or expenses? After some self-examination you should be able to determine whether your existing financial habits are good ones or bad ones in need of change.

The goal, of course, is to create good financial routines which become habits that are burned into your subconscious – things you do because you’ve trained your mind to do them automatically. It is financial routines like this that play a huge role in financial success.



This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com



5 Money Tips Every College Freshmen Should Know

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


For many college freshman and their parents, the next few weeks will be the beginning of a new adventure. I should know since another one of my boys heads off to college this year. The freshmen are leaving home, orientation is in full-swing and the students are sizing each other up and getting used to their new surroundings. Similarly, parents are getting acclimated to new surroundings too – an unusual silence in the home and questions about how best to fill the hours that were previously spent with our sons and daughters watching their sporting events and attending their school activities.

Saying Goodbye: Toy Story 3                        © Disney/Pixar

As a parent, I have conflicting emotions; I eagerly anticipate the wonderful experiences my son will enjoy over the next four years, and like Andy’s mom in Toy Story 3, I have feelings of melancholy and longing. Parents of college freshmen will fondly remember reading bed-time stories and taking their sons or daughters to the soccer fields on Saturday mornings. For those of us who can’t comprehend that it has already been 18 years since our kids were born, they will quickly show us that the next four years will go even faster.

Members of this year’s freshman class, most of them born in 1993, grew up just as the internet was starting to take off. This was incredibly helpful for parents like me who often turned to their kids to get tips on how to use the “interweb” or how to fix their computers. Yet for all the help our kids have given us, we are still their parents and can offer valuable advice too – even if they won’t recognize our wisdom for a few more years. As Mark Twain once said, “When I got to be 21, I was astonished at how much the old man had learned in a few short years.” 

Here are five money tips every college freshmen should know.

1. Go to Class. While it may be tempting to sleep-in and skip that early Monday morning English 101 class, doing so is like throwing money out the window. I hate to state the obvious, but college is expensive. According to a newly released Sallie May study, college costs last year averaged $21,889, and some schools like Northeastern University cost more than $50,000 per year. Assuming a schedule of four classes that meet three times per week over a fifteen week semester, each class skipped costs between $120 and $275. That’s some expensive shut-eye.

2. Don’t get a credit card. Sure, the guys sitting behind the sign-up table may be offering some free t-shirts and cool merchandise as an enticement to get you to apply for their credit card, but they’re not there to help you. College campuses are where many young Americans are introduced to credit and the possibility of spending beyond their means – a problem confronting the nation as a whole. If you must use a credit card, avoid non-academic debt. It might seem like a good idea to put that restaurant tab or your new iPad on a credit card, but it’s not. Learn to save, and then splurge.

3. Don’t hang out with big spenders. You’re a college student, so live like one. Don’t pretend to live a lifestyle you can’t afford. Some kids have parents with deep pockets while others are on their way to financial ruin. Hanging out with these free spenders can lead you to spend more than you can afford. Instead, socialize in the dorms, learn to cook in your apartment, use your student ID and take advantage of campus activities and student discounts.

4. Have a Spending Plan. Set a weekly budget for spending categories like food, entertainment, road-trips and the like. At the start of each month, estimate how much income you’ll receive and decide how much you want to allocate to each category. If you anticipate taking a date to an expensive restaurant, skip your morning cup at Starbucks that month or reduce spending in other areas. It is amazing how little things can add up. A couple of energy drinks, lunch at the local Chipotle, several ATM fees and a couple of apps for your iPad means that at the end of the month you may find yourself looking at a large part of your budget going towards “inexpensive” things you splurged on without thinking. Spend less than you earn.

5. Get a job. Being broke in college is no fun. If you would like to spend more, you’ll need to earn more. If you need or want a job, look for ones that you can eventually put on your resume or will bolster your internship options later on. Alternatively, seek out positions that add to your personal development. Like to mountain climb? Work at a rock gym. Enjoy cooking? Get a job in a restaurant. Want to help people? Try a non-profit. Finally, remember the story of Facebook and consider starting your own business. It could be that you have an idea that might be the next big thing, but it could equally be a simple babysitting service, tutoring, or buying and reselling stuff on eBay. Above all, remember that your first “job” is to graduate on time. Earning some extra cash each month is great but those semesters of school don’t come cheap.

Now stop worrying about money and get out there and have some fun. I’ll see you when you come home for Thanksgiving!



This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/five-money-tips-every-college-freshmen-should-know

Does the Stock Market Have You Worried?

Buy Low; Borrow Low.

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

The huge swings in the stock market last week may seem all too familiar. Perhaps you’re worried about a repeat of the 2008 financial crisis. Before you dump your holdings and run for cover, consider this surprising fact. According to the Employee Benefit Research Group, most retirement plan account balances have bounced back to pre-2008 levels. Account balances didn't recover entirely from the strength of the market -- those automatic paycheck deductions helped a lot too. Investors who cashed out and remained on the sidelines missed out on the profitable years since the crash. Still, the roller-coaster volatility we have experienced recently with the Dow dropping 600 points one day and rallying back 500 points the next is enough to cause some participants to consider getting out of their plans all together. For many people, this could be a big mistake.


Buy Low: Legendary investor Warren Buffett once counseled, "Be brave when others are afraid, and afraid when others are brave." If you want to heed Buffett’s advice, the best time to buy low is when everyone else is scared. It is their collective fear and the group-think selling that drives stocks to deeply-oversold bargain prices. History has shown that the rallies coming out of these oversold positions often occur quickly and are highly profitable.

Don’t you just love a bargain? I was recently shopping at the Borders book store at Mansfield Crossing. Activity was brisk and I can’t begin to tell you how many customers were leaving the store with stacks and stacks of books, all purchased on sale. Often times when we read about the Dow Jones Industrial Average dropping, or watch the TV news anchors emotionally-charged segments about Wall Street, we worry and think that these market corrections are always a bad thing. If you’re young and have many years before retirement, however, market drops can be a very good thing indeed. When else can you purchase your mutual funds on sale?

Another consequence of the turmoil in the stock market is plunging interest rates. Last Tuesday, the US Federal Reserve pledged to keep interest rates at an “exceptionally low level” until the middle of 2013. This news could be a boon for families looking to buy or refinance their homes.

Borrow Low: "There’s a huge increase in mortgage applications," said Jerry Maguire, Senior Mortgage Advisor at Province Mortgage Associates, a local mortgage lender. With rates on conventional 30-year fixed-rate mortgages falling near, and in a few cases below, the 4 percent level, homeowners locally have been rushing to refinance in recent weeks. You’ve probably heard the old rule of thumb that says it only makes sense to refinance your mortgage if the new interest rate is at least two percentage points lower than your current one. “Not true” says Maguire. “Many people worry about their adjustable rate mortgages resetting at higher rates in the future. Even if you can’t lower your monthly payment by refinancing, many families can benefit by exchanging the uncertainty of a floating rate loan for the certainty of a fixed one.” Additionally, today’s low rates may allow some families to reduce the term of their mortgages from 30-years to just 15 or twenty years and potentially save thousands in interest costs.



Of course, everyone’s situation is different. As a financial advisor with more than twenty years experience, I’ve been down this road before. I understand that the number one question on the mind of most investors is, “What should I do now?” The answer to this question is the same for everyone: Talk with your advisor.

Oh, and if you’re worried that this is 2008 all over again? It’s not; there are major differences between then and now. Yes the equity markets have experienced recent losses, but today’s economic growth, while weak, is still positive. The banks in the United States are in much better shape than when the housing market collapsed. And corporations are producing solid earnings even in a weak economy. As an investor, I find that reassuring.


____________________________________________________________________________

This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/does-the-stock-market-have-you-worried





The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Financial Lessons from Driver's Ed

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™ 

The Dow Jones industrial average dropped over 600 points Monday in the first day of trading after Standard & Poor's downgraded the United States' credit rating.  Skittish investors, already concerned about the economy, struggled to work out the implications of last week's downgrade.  With so much attention and angst focused on the debate in Washington over the US debt ceiling these past few weeks, it is no wonder the financial markets continue to bounce around. It seems that TV financial experts and entertainers (financial “expertainers”) often exaggerate events in the marketplace and thus excite the emotions of investors who are swayed by fear. This emotional ping-pong game results in illogical investment behavior, such as buying at market highs and selling at market lows. The wise investor learns to look past the colorful adjectives that describe daily market swings and instead keeps his or her eyes focused on long-term trends.


The Long View

My 16-year old son is currently taking his Driver’s Ed course at Driver’s Choice Driving School. Do you remember the first time you got behind the wheel of your mom’s station wagon? For me, I remember staring at the road immediately in front of the hood rather than looking 20 or so yards ahead. Quickly, it became apparent that it was next to impossible to drive safely with such a short-sighted approach to my surroundings. Even with a straight road, little traffic and perfect driving conditions, it was next to impossible to drive in a straight line when I only focused on the 3 feet of roadway immediately ahead of the front bumper. When I learned to look further down the road -- taking the long view – I discovered that maintaining a straight line of travel was not only easier, but much safer too.

It seems to me that the same logic applies to investing. Losing sight of the long term and thinking that you can time the market by selling at the peak and then re-entering the market once it hits bottom is a big mistake. Timing market shifts is nearly impossible and requires two correct decisions: when to sell and when to buy back in. While making modest adjustments can add value, investors who make wholesale market timing bets usually lose. The biggest potential pitfall in trying to time the market is missing the days it’s “up.” For example, during the 10-year period after the 1973-1974 stock market decline, an investor who missed just 10 of the market’s best days would have also missed out on more than 50% of the market’s price return.1 Imagine that! And trying to figure out when those 10 best days would occur would have been an impossible task when you consider that none of the days were consecutive, four of the days occurred in a single year, and six of the years didn’t have any of the best 10 days.2 Perhaps the folly of market timing can be illustrated with another lesson from Driver’s Ed.

Route 3 Traffic to the Cape
The left hand lane of the highway is referred to as the passing lane while the right hand lanes are called the travel lanes, right? In theory this seems correct, but on a Friday afternoon in the summer, all lanes heading to the Cape would probably be better referred to as “parking lot lanes”! How many times when sitting in traffic do you find yourself wanting to switch lanes? We’ve all done it; the lane next to ours starts to move so we put our blinker on, scan the rearview mirror and move into the line of cars that are making progress down the road. And as soon as we do it, our new lane stops and the one we were previously sitting in starts to move again. So, if you have a long-term investment horizon and are tempted to get out of the market and move entirely into cash because of short-term events, you may be wise to remember the story about Cape Cod traffic jams.

Financial Lessons
While the debt ceiling debate has grabbed the headlines and is currently the most significant risk to the market, the underlying strength of the global economy remains solid. Company earnings continue to be very strong as corporate America continues to benefit from a resurgent business reinvestment climate and a resilient consumer. On the other end of this self-imposed debt ceiling crisis stands an economic climate where businesses are earning near record profits, employment is improving, housing has stabilized, and consumers are once again revisiting the malls to spend.



Enjoy the Ride
As we enjoy the beautiful warm nights, think back to the summer shortly after you received your driver’s license. What joy and freedom we experienced when we used to cruise the streets with the windows open listening to our favorite songs play on the radio. One of my favorite songs from those days was by The Doors. Jim Morrison sang, “Keep your eyes on the road, your hands upon the wheel… We’re gonna have a real good time.”

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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/financial-lessons-from-drivers-ed




The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Tick, Tick, Tick: Our National Debt and How it May Impact the Economy and Financial Markets

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

The clock continues to tick towards the August 2, 2011 deadline when the United States debt ceiling limit will be reached. While the newspapers and TV are full of stories about this situation, I thought you might find it helpful to hear some of my thoughts as it relates to your investments and the market in general.


Overview: The debt ceiling limit is a key element of U.S. Government financial management. The U.S. Government is expected to receive about $175 billion in tax revenues for the month of August, but has $310 billion in monthly obligations that it needs to meet. As a result, the $135 billion in monthly shortfall is usually borrowed via the issuance of U.S. Treasury bonds. However, once the debt ceiling is met, the U.S. Government will not be able to issue new debt and will therefore, have to make significant decisions as it relates to what $135 billion or 44% of its “bills” it will delay payment on. That is, of course, if the debt ceiling limit is not raised by Congress and signed into law by the President.

Politics: While the rhetoric coming out of Washington has certainly transitioned from compromise to contention, it should not be overlooked that the divided parties are aligned on a few very important criteria that should bring a resolution closer to happening—namely that spending cuts should be enacted and that a more responsible government spending policy should be put in place to get a handle on the nation’s soaring national debt. In addition, both sides seem to now understand that the polarizing political view of revenue increases (the Democrats’ wish) and significant entitlement reform (the Republicans’ wish) are too significant a gap to overcome over the short term and are now virtually off the table.

What Happens Next: Now, the only things (and they are a big “only”) that the two sides have to work out are: where the cuts in spending should come from, how long they will take to implement, and how much money they will save. The reality is that the two divided sides are not as far apart on the terms of a deal as they are from an ideological and political posturing perspective. Said another way: the two sides sound and act a lot further apart than their competing plans actually are.

We expect that the debate in Washington will continue over the next few days as the game of political ideological “chicken” plays out. However, our base case is that a compromise will be forged over the coming days and will result in either a short-term extension of the debt limit or, more likely, an agreement to raise the borrowing capacity of the United States Government until well into next year.

More importantly, even if a bill is not agreed upon and signed into law to raise the debt ceiling by August 2, we do not foresee the United States Government defaulting on its obligations. A default will occur if the government failed to pay the interest due on its debt. For the month of August, the interest due on Treasury bonds accounts for only $29 billion, which is easily met by the $175 billion in tax revenues that are expected. However, while a default would be avoided, the significant impact of dialing back $135 billion that could not be borrowed for other Federal services and obligations would have serious economic impacts.

The Economy: While the debt ceiling debate has grabbed the headlines and is currently the most significant risk to the market, the underlying strength of the global economy remains solid. Moreover, several of the open-ended issues that have lingered for months are finally getting substantively addressed, including a plan for a second bailout of Greece, a stabilizing European debt crisis, and the re-emergence of Japan’s economic infrastructure from its terrible natural disaster in early spring. In addition, company earnings continue to be very strong as corporate America continues to benefit from a resurgent business reinvestment climate and a resilient consumer.

The Financial Markets: In the meantime, the current conditions support a cautious stance as the market is sin gularly focused on Washington. We expect that a resolution on extending the debt ceiling will ultimately be agreed upon, but not until the deeply divided government drags the nation and the market even further through the mud. But, on the other end of this self-imposed crisis stands an economic climate where businesses are earning near record profits, employment is improving, housing has stabilized, and consumers are once again revisiting the malls to spend. While the turmoil in Washington will invariably offer up several more nervous days as the debate lingers on, we believe that a relief rally for the market is around the corner once compromise replaces contention and unity trumps division.


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult me prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
 The economic forecasts set forth in the presentation may not develop as predicted and there can be no guarantee that strategies promoted will be successful.  The research in this letter has been prepared by LPL Financial.

Don't Suffer a Financial Heart Attack!

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™



1986 Tour de France

The Tour de France is said to be the largest spectator event in the world with an estimated attendance of over 10 million people. The attendance swells because the race isn’t a single day event -- it actually takes place over 21 days and covers more than 2000 miles. The most popular stages are the ones that see the riders climbing the French Pyrenees or Alp Mountain passes. This week, the Tour is in the high mountains and the combination of gorgeous scenery, a colorful peloton and tens of thousands of cheering fans is a sight to behold. For the past several years the race has been broadcast in High Definition on the Versus TV channel (home of the Stanley Cup Playoff coverage) and it has become one of my favorite things to watch.


The only downside to watching the Tour on TV is the constant barrage of commercials. One, which seems to run repeatedly, advertises something called the “Road ID bracelet”. The Road ID provides emergency contact information and was based on the tragic story of a gentleman by the name of Jim Fixx. Jim wan an average Joe who took up running to lose weight and quickly lost 50 pounds. As a result of his experience, he wrote several books, and is known as the best selling running and fitness author of all time. Jim has been given credit for starting the Fitness and Running Boom of the early 80’s. Jim had lost weight, was running every day, and was feeling great! Then, on July 20, 1984, Jim was found unconscious on the side of the road - wearing only his jogging shorts. He was immediately taken to the hospital where he was pronounced dead of a heart attack. Unfortunately, like most runners, joggers, cyclists, and walkers, Jim was not wearing identification when he had his accident. It wasn't until a day later that he was positively identified and his family contacted. He had never been to the doctor for a physical because as long as he was staying in shape, there was nothing to worry about, right? Wrong. Apparently, there was a history of heart disease in Jim’s family. When he died, his arteries were almost 95% clogged. If Jim had gone to the doctor every year for a physical, they could have detected the heart disease and been able to treat it.


Have You Scheduled Your Financial Physical?
So, what do the Tour de France and the story of Jim Fixx have to do with your personal finances? Well, it’s time for your financial physical. The year is now more than half over and now is a good time to sit with your financial advisor to review your finances and see if you’re meeting your financial goals.

Like the undulating roads throughout the Tour, our lives are constantly experiencing ups and downs. We experience joys of marriages, births and retirements and at other times face the difficulty of divorce, death and unemployment. The financial world is also constantly changing. Changes in the market place, investments, and tax laws are much more likely to happen today than ever before. With the ups and downs of the stock market and the current state of the global financial markets, it is more important than ever to make sure your portfolio is properly positioned and right for your current situation.

We meet with our doctors frequently to get a physical to make sure everything is okay. Regular health screenings are important. Underlying health conditions aren’t always obvious: nothing hurts, no unusual symptoms, everything seems fine until one experiences sudden chest pain, or discovers a lump while in the shower. When it comes to cancer, everyone knows that it is better to catch a health problem before its advanced stages. Most of us take routine tests and go to the doctor regularly in an effort to maintain our physical health. But how about our financial health? Do yourself and your family a favor and schedule a financial physical to make sure your financial health is in check.

Yes, I Bought a Road ID

Click here to visit my PMC Profile


By the way, I ended up purchasing a Road ID bracelet because I’m currently training for the Pan Mass Challenge bicycle fundraiser to support the Jimmy Fund. This will be my 14th year riding in the event and if you would like to learn more about the PMC and why I ride, please visit my PMC Profile website: www.pmc.org/profile/SD0039

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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Quarterly Review -- First Half of 2011

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™

MANSFIELD, MA:  As I write this blog entry, the June 30 investment statements are starting to come across my desk.  I imagine that the US Postal Service has already delivered yours to you too.  You’ll see that the first half of the year has produced modest single-digit gains for most assets classes. 

Market Performance in the First Half
The first quarter of the year showed the markets registering solid gains, despite the effects of Japan’s terrible earthquake and tsunami. 

The second quarter was a different story, with concerns arising from growing inflation threats in emerging markets, debt worries in Europe and a downgrading of growth forecasts for the global economy.  Below are the first-half results for some key markets.

Source: MSCI
Note: Results are in local currencies; the effect of swings in the dollar is not reflected

Here at home, we saw U.S. stocks fall for the first time in four quarters.  The S&P 500 lost 0.39% in the second quarter, a period marked by worries over high gas prices and indications that the recovery was stalling.  Given the above, I want to share a few quotes which I think help us see things in perspective.

Quote #1
-- Warren Buffett, letter to investors published February 2011
“Money will always flow toward opportunity, and there is an abundance of that in America.”

In November of 2009, Berkshire Hathaway spent $26 billion to buy the 77% of rail giant Burlington Northern that it didn't already own. In interviews, Warren Buffett referred to this as "betting on America." Buffett has been consistent in his positive outlook for the U.S. economy, looking past short-term events to focus on America's ingenuity and resolve and its ability to attract the best and the brightest from around the world.

Buffett is consistently voted the greatest investor of all time. In the 46 years he's run Berkshire Hathaway, annual growth in book value has exceeded 20%, more than twice the gains for the U.S. stock market index. Even more remarkable, Buffett's numbers are after tax, while the index's gains are pretax. And while he had lagged in individual years, in his last letter to shareholders, Buffett pointed out that there has never been a five-year period where Berkshire Hathaway underperformed the S&P.

To put his record into dollar terms, $1,000 invested in the Standard & Poor’s index of U.S. stocks at the start of 1965 would have risen by the end of 2010 to $62,620. By contrast, that same $1,000 under Buffett's stewardship would have grown to over $4 million.

Quote #2
-- Bill Gross, Morningstar Fixed Income Manager of the Decade; June 7, 2011
“In terms of the stock market, there are amazing 0pportunities [compared to U.S. government bonds]; there’s a huge gap and a huge differential.”

As manager of PIMCO Total Return Fund, the world's largest bond fund, Bill Gross turned in a track record matched by few others and was named Morningstar Fixed Income Manager of the Decade. In part, this stems from his willingness to take contrarian views: in 2010, he went on record talking about the "new normal" of lower growth, higher inflation, and increased risk in holding debt of governments around the world.

In a June 7 interview on CNBC, he spoke about stocks and said, “Corporations are in the catbird seat. They've got cheap financing, cheap leverage. They've got cheap labor and the ability to move from one country to another at their will. And so corporations basically have done very well, and will probably continue to do very well.”

What this Means to Investors
In today's low-interest-rate environment, it's hard to make a compelling case for cash except as a portfolio diversifier and a source of liquidity.  As for bonds, Bill Gross represents the growing sentiment that the risk in bonds is rising as economies recover and interest rates start to rise.
This leaves stocks.  Whether you adopt the "lesser of two evils" view of stocks as opposed to bonds, like Bill Gross, or join Warren Buffett in embracing stocks more enthusiastically, there are clear values in high-quality stock market investing.

In Buffett’s annual letter, he encouraged his shareholders to see through the haze.  He wrote, “Commentators often talk of ‘great uncertainty.’  Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Human potential is far from exhausted, and the American system for unleashing that potential remains alive and effective.”
Here’s what I wrote last quarter, and I continue to believe this is the way forward:  We've always had unexpected events and always will. And despite these unforeseen events, economies have grown, companies have prospered, and stock markets have generated positive returns. The key to benefiting from this long-term growth has been to diversify so that no single event can create permanent damage to your portfolio.

I believe that investors with a balanced approach and a long-term view will be well rewarded. The approach to risk management I recommend may not be fun or sexy in the short term, but all the evidence at hand suggests that over time it will serve you well, getting you to your goals with the least amount of stress and distress along the way.

Financial Independence Day

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


MANSFIELD, MA:  We recently had a friend from New Zealand staying with us for a few days. One of my sons jokingly asked him, “Andrew, do they have the 4th of July in New Zealand?” He was quick to catch on and replied, “Of course they do, but they don’t celebrate Independence Day.”

Corey Shea Memorial Flagpole, Mansfield, MA

Today, Americans are observing Independence Day. Most of us have been looking forward to this long-weekend because we’re able to enjoy a day off from work and spend our free time with friends and family. And just as we look forward to the 4th of July weekend, most of us look forward to celebrating another type of Independence Day – Financial Independence Day. This, of course, is not a single day free from work, but a period in our lives when we no longer need to work ever again because our expenses are met by unearned income.

While this is a laudable goal, it won’t be achieved by all. Some people work their whole life, while others retire early. Some people retire and live comfortably, while others are dependent on children and friends. Here are three tips to help you achieve financial freedom:

Spend less than you earn.
If you’re looking for a good book to read on the beach during this summer’s vacation, check out the 1996 bestseller, The Millionaire Next Door. While this book is now 15-years old, its message is timeless. Authors Thomas J. Stanley and William D. Danko explain that one of the keys to success is to live within your means. This can be accomplished by earning more – OR – spending less. The theme of the book is that society’s concept of a millionaire is wrong; most actual millionaires live a very simple lifestyle. In general, they are frugal and value achieving financial independence more than displaying high social status. In other words, they don’t try to keep up with the Jones’. After all, the Jones’ may be in debt up to their eyeballs!

Feed your 401k.
One of the most important things you can do to hasten your own Financial Independence Day is to continually save and invest for retirement. Take full advantage of your company’s 401k plan. If your company matches your 401k contributions, be sure to at least contribute the amount they will match; it’s like getting free money! Remember too that the government offers tax advantages to these types of qualified retirement plans. Most contributions are made with pre-tax dollars which means you pay less in taxes. Furthermore, your earnings have the potential to grow on a tax-deferred basis. This means your nest egg may grow quicker because you’re not paying taxes on the account until you begin to take distributions, typically at retirement.

Prepare for emergencies.
If you suddenly discover your home needs a new roof, or if a major appliance or car breaks down, will you have the money available to pay for it? Create an emergency reserve. The amount of your emergency reserve may vary according to the flexibility of your budget and your comfort zone. Bear in mind that this is the money that will see you through financial storms while you maintain a long-term strategy working toward financial independence. Your emergency reserve is not intended to cover all possible risks. For complete protection, get medical insurance, long-term disability insurance and fire protection for your home. Even policies with a large deductible can help if a crisis comes up. You can't avoid emergencies, but living without these types of insurance is an invitation to financial ruin.
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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/financial-independence-day


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

Doctor, what do you mean you can't talk to me about my child?

Important considerations for parents of young adults


By Steve Davis, CERTIFIED FINANCIAL PLANNER ™



MANSFIELD, MA:  It was a proud moment for the members of Mansfield’s largest ever graduating class. Each of them walked across the stage of the Comcast Center to receive their diplomas -- and thunderous applause from family and friends. My wife and I were there cheering one of our boys and the conversation we shared with other parents was about times past. “Remember when came here direct from the Little League fields so we could watch the kids perform in the Jordan Jackson band? They were so tiny then.” But here we were a dozen years later watching our “kids” walk off the stage into adulthood. Where did the time go?

For parents of young adults, it may come as a surprise to learn that once our children become legal adults at age 18, they and they alone are responsible for making their own medical and financial decisions. This means that if your son or daughter has an accident or is unable to make decisions about his care, you would be powerless to help – even as parents. While your son may still be your dependent, you are no longer considered his legal guardian. Under the federal HIPAA rules, your teen’s medical records are between him and his doctors. Similarly, no bank officer or college purser will break privacy rules to discuss your child’s financial account status or even grades. And just because you pay the tuition doesn’t override the school’s privacy policy. Your daughter’s finances are as private as yours.

Helping with Health Care Decisions:

It’s every parent’s nightmare. You might be informed that your child had an accident and is in the hospital, but legally, you cannot get any information about your child’s condition or treatment. As a dad, I can’t imagine a situation that would produce stronger feelings of helplessness and frustration.

So, what’s a parent to do? The first step is to have an adult conversation with your adult child. Explain that in the event of a medical emergency you would be unable to help unless you are given prior permission. According to Easton attorney Karen McSherry, “A properly executed health care proxy and durable power of attorney grants a parent authorization to make health care decisions if your child is incapacitated, and grants you access to your child’s medical records so you can have discussions with doctors and insurance companies.” When you speak with your adult child, you should agree in advance how and why such documents would be used. Your son or daughter should also know that they remain in charge of their own affairs since the documents can be revoked at a later date.

Without prior approval, the only other option for parents of an incapacitated adult child is to petition the probate court for guardianship. This is often a long and expensive process that only gives you the ability to help once the court appoints you as guardian.


Helping with Financial Decisions:

Before we know it, the summer will be over and many of these recent high school grads will be heading off to college. Hopefully, we won’t see them on TV at the big game holding a sign that reads, “Hi Dad, send money!” But if your student needs help with banking, financial aid, or has a problem with his credit card while travelling overseas, for example, you’ll be unable to help unless you have a durable power of attorney.

According to McSherry, “Properly drafted documents will give parents peace of mind because they know they’ll be able to help with ordinary transactions, plus deal with financial and medical emergencies.”


Action Steps:

So, while your kids are still living under your roof, take some time to talk with them about these important matters. Before your son or daughter heads off for school and beyond, visit your local attorney to discuss your specific situation. Better safe than sorry.



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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/doctor-what-do-you-mean-you-cant-talk-to-me-about-my-child


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.

How to Select a Financial Advisor

By Steve Davis, CERTIFIED FINANCIAL PLANNER ™


You remember what it felt like when your friends were outside playing in the sun and you were stuck inside doing chores for mom and dad, right? Well, if that’s how it feels when you’re sitting down to do your financial plans, it may be time to hire a financial advisor. In part 1 of this series we looked at 3 Reasons to Hire a Financial Advisor. In this column, we’ll explore the process of choosing the best financial advisor for you.

Trust:  The absolute most important step is to find someone you can trust. But selecting an advisor takes more than that; just ask anyone who has listened to their stock-punting uncle and later regretted it. Not only is trustworthiness important, but so too is competence. Integrity without competence is no bargain so here are some tips to help you find a good financial advisor.

Experience: I don’t know about you, but with matters that are important to me, I’m not comfortable letting a rookie practice on my family. An advisor should have an appropriate level of business experience. Would you be comfortable hiring a financial advisor who was partying in his college frat house when the 2008 market crash occurred? Or even the dotcom crash in 2000? Advisors who have not experienced at least two market cycles probably don’t have enough perspective.

Education: Anyone can hang a shingle as a "financial planner" so determine what qualifies that person to offer financial planning advice. A good place to start is to find a professional who holds a recognized financial planning designation such as a CERTIFIED FINANCIAL PLANNER™ (CFP). A CFP has passed a rigorous test administered by the Certified Financial Planner Board of Standards on topics ranging from investments and insurance to tax, estate and retirement planning. CFPs must also commit to continuing education and a code of ethics in order to maintain their designation. The CFP credential is a good sign that a prospective planner will give sound financial advice, but even those who pass the exam may come up short in other areas.

Compensation and Independence: An advisor should clearly tell you how he or she will be paid. This is typically done through commissions and/or fees. If your advisor is exclusively commission based make sure he is not a thinly-designed salesman who is incented for pushing a company’s product. Instead, find an advisor who can help you choose unbiased financial products from many of the nation’s leading investment managers, not just those offered by his employer. If your advisor is compensated by charging fees, ask whether the fee is based on a percentage of the assets he manages for you, or whether he is charging an hourly fee. Beware of the “full financial plan for a flat fee” option. These plans are sometimes long on glossy pages and charts, but short on specific advice for your unique circumstances. Additionally, these flat fee plans often offer no guidance on how to implement the recommendations and often fail to provide ongoing service as your situation evolves over time.

Communication: You can learn about an advisor’s communication skills by interviewing them, checking out their website, attending a seminar they conduct, or by reading the articles they write. A good financial advisor is one who communicates clearly and the best advisors are the ones who are able to make the complicated easy to understand. Sadly, it seems some financial planners try to impress (or intimidate) clients by using technical jargon that isn’t understood. If you can’t explain in your own words what the advisor is recommending, don’t ever proceed!

Background Information: In the wake of the Bernie Madoff scandal, the importance of due diligence has become clearer than ever. Ask prospective advisors if they have ever been subject to disciplinary action. Several government organizations, such as the Financial Industry Regulatory Authority (FINRA) and your state insurance and security departments maintain records on the disciplinary history of financial planners and advisors. This information is in the public record and can easily be checked. If there is anything that makes you uncomfortable, go elsewhere.

Likeability: When you’re done interviewing potential advisors, you should be able to ask yourself one last question – Do I like this person? Hire people you like.



The Benefits of Hiring a Financial Advisor.  Managing your personal finances is ultimately your responsibility but you don’t have to do it alone. If you don’t have the time, interest or inclination to handle your own financial plans, hire a qualified professional, such as a CERTIFIED FINANCIAL PLANNER ™. Together you’ll be able to identify your goals and manage your finances so that you can work toward making the most of your financial resources while also trying to avoid common mistakes. In the end, you want to find a professional that is trustworthy, competent and likeable. In other words, you want to select a financial advisor who is right for you.



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This article was written by Steve Davis and appeared in the column "Talking with Davis about Money Matters" found at http://mansfield-ma.patch.com/articles/how-to-select-a-financial-advisor


The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.