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I am not a financial advisor, but I am a personal finance writer. This is well intentioned, but too reductive. All 401(K)/403(B) plans are not the same. Mine

I am not a financial advisor, but I am a personal finance writer. This is well intentioned, but too reductive. All 401(K)/403(B) plans are not the same. Mine is managed by the vanguard and has microscopic fees. Similarly, all investors are not the same. I don't think it's necessarily sane to sock money into an S&P 500 index fund, especially one that's capitalization weighted. As much as it sucks to say this...the best way to deal with your finances is to get an advisor. A lot of them are leeches, but good ones exist. The emergency fund idea is a great one though. I'm partial to keeping 3 months of expenses in cash and another 9 months in highly liquid, low volatility securities.

Periodic 16y ago
I know that I should find a financial advisor to help my wife and I plan what to do with our growing incomes. However, I have no idea how to pick a good financial advisor and keep hearing how bad many of them are. Any advice on this subject, even if it is just a reference to a decent guide?
- nostrademons 16y ago
  I used to work in financial software and very much disagree with aspiringsensei's advice. There's a huge adverse selection problem with financial advisors: the ones who are any good at managing money can make far more at Goldman Sachs, which tends to leave the people who don't really understand what they're doing advising the retail investors. The advice my sister got when she talked to a "good" (recommended by her employer) financial advisor was atrocious: it was based mostly on the theory that large dividend-paying companies never go out of business, which seems rather ironic considering he worked for Merrill Lynch, a large dividend-paying company that nobody would imagine would go out of business, and yet...went out of business in 2008. I'd start by educating yourself on the mechanics of the market. Read A Random Walk Down Wall Street, read Benjamin Graham, read Warren Buffett. Learn to read an income statement and a balance sheet, and look at some historical stocks with income and assets in mind. Figure out how you would manage your money if you had infinite time. Then if you want, hire a financial advisor that manages money the same way you would, except has the time that you don't to actually investigate companies and keep an eye on their financial performance. Also, keep in mind that an index fund is effectively free financial advice (that you always follow) from every market participant. Essentially, you're saying "I don't have time to make my own investment decisions, so I'm going look at the average of what everyone else is doing, and do that." That average will include everything from Goldman Sachs money managers and Warren Buffett down to retail investors and financial advisors. It's capitalization-weighted though, so the people with the most money's "votes" count the most, which is usually what you want.
  - aspiringsensei 16y ago
    I don't think we'll come to agreement. There are bad FA's out there. Your wife got bad advice, and bad advice is out there. I certainly agree that a lot of FAs are meatsticks who should be locked away. But I think our dissonance comes from a place you might not expect. I view the prime contribution of a financial advisor to be the construction and adherence to a financial plan with clearly stated assumptions and goals. I don't think most investors can do this on their own, and I don't think reading "A random walk down wall street" will help them. Personal investors are poorly served by a mentality which suggests aiming for the highest total return is their goal. They should instead seek to generate a return which will provide for their needs. Also, equal weight indexes tend to broadly outperform cap-weighted indexes, fyi.
- aspiringsensei 16y ago
  Here are some good questions to ask yourself, questions your advisor should ask you, and questions you should ask your advisor. If you can get clear answers to all this stuff, you're doing pretty well. full disclosure: I work for this organization. Interested to hear what you think about the site & etc. http://www.cfainstitute.org/about/investor/Pages/questions_ask_yourself.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_ask_advisers.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_advisers_should_ask.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a...
timr 16y ago
"I'm partial to keeping 3 months of expenses in cash and another 9 months in highly liquid, low volatility securities." I'm curious...what highly liquid, low volatility securities are you in right now? The best I've been able to do is a high-yield online savings account, but I'd love to know if there's something better.
- jerf 16y ago
  I put this question to my advisor two weeks ago, and his point was that right now, if you're talking about something that you reasonably fear will be short-term (which is the entire point of emergency funds), there's nothing better enough than a saving account right now to make it worthwhile. Getting even 2% vs. .5% for two or three years just isn't that significant on a couple tens of thousands of dollars, the difference is swamped by future uncertainties either way. Either way you're pretty much going to be able to take out what you put in.
- aspiringsensei 16y ago
  I'm partial to treasurydirect's t-bills program. No fees (except if you sell early) and short maturity.
  - _delirium 16y ago
    If you're under the FDIC insurance limit, I've generally found savings accounts to pay more for the same safety. For example, ING Direct currently pays 1.10%, versus 0.15% for the 1-mo and 3-mo t-bills.
- Poiesis 16y ago
  I use a CD ladder for this purpose. Twelve one year CDs, each maturing on different months, set to automatically reinvest unless we decide otherwise. Works well for the people who need to have their emergency money a bit harder to get too, too. We just like getting slightly higher interest.

Periodic 16y ago

I know that I should find a financial advisor to help my wife and I plan what to do with our growing incomes. However, I have no idea how to pick a good financial advisor and keep hearing how bad many of them are. Any advice on this subject, even if it is just a reference to a decent guide?

nostrademons 16y ago
I used to work in financial software and very much disagree with aspiringsensei's advice. There's a huge adverse selection problem with financial advisors: the ones who are any good at managing money can make far more at Goldman Sachs, which tends to leave the people who don't really understand what they're doing advising the retail investors. The advice my sister got when she talked to a "good" (recommended by her employer) financial advisor was atrocious: it was based mostly on the theory that large dividend-paying companies never go out of business, which seems rather ironic considering he worked for Merrill Lynch, a large dividend-paying company that nobody would imagine would go out of business, and yet...went out of business in 2008. I'd start by educating yourself on the mechanics of the market. Read A Random Walk Down Wall Street, read Benjamin Graham, read Warren Buffett. Learn to read an income statement and a balance sheet, and look at some historical stocks with income and assets in mind. Figure out how you would manage your money if you had infinite time. Then if you want, hire a financial advisor that manages money the same way you would, except has the time that you don't to actually investigate companies and keep an eye on their financial performance. Also, keep in mind that an index fund is effectively free financial advice (that you always follow) from every market participant. Essentially, you're saying "I don't have time to make my own investment decisions, so I'm going look at the average of what everyone else is doing, and do that." That average will include everything from Goldman Sachs money managers and Warren Buffett down to retail investors and financial advisors. It's capitalization-weighted though, so the people with the most money's "votes" count the most, which is usually what you want.
- aspiringsensei 16y ago
  I don't think we'll come to agreement. There are bad FA's out there. Your wife got bad advice, and bad advice is out there. I certainly agree that a lot of FAs are meatsticks who should be locked away. But I think our dissonance comes from a place you might not expect. I view the prime contribution of a financial advisor to be the construction and adherence to a financial plan with clearly stated assumptions and goals. I don't think most investors can do this on their own, and I don't think reading "A random walk down wall street" will help them. Personal investors are poorly served by a mentality which suggests aiming for the highest total return is their goal. They should instead seek to generate a return which will provide for their needs. Also, equal weight indexes tend to broadly outperform cap-weighted indexes, fyi.
aspiringsensei 16y ago
Here are some good questions to ask yourself, questions your advisor should ask you, and questions you should ask your advisor. If you can get clear answers to all this stuff, you're doing pretty well. full disclosure: I work for this organization. Interested to hear what you think about the site & etc. http://www.cfainstitute.org/about/investor/Pages/questions_ask_yourself.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_ask_advisers.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a... http://www.cfainstitute.org/about/investor/Pages/questions_advisers_should_ask.aspx http://www.cfainstitute.org/about/investor/Pages/questions_a...

timr 16y ago

"I'm partial to keeping 3 months of expenses in cash and another 9 months in highly liquid, low volatility securities." I'm curious...what highly liquid, low volatility securities are you in right now? The best I've been able to do is a high-yield online savings account, but I'd love to know if there's something better.

jerf 16y ago
I put this question to my advisor two weeks ago, and his point was that right now, if you're talking about something that you reasonably fear will be short-term (which is the entire point of emergency funds), there's nothing better enough than a saving account right now to make it worthwhile. Getting even 2% vs. .5% for two or three years just isn't that significant on a couple tens of thousands of dollars, the difference is swamped by future uncertainties either way. Either way you're pretty much going to be able to take out what you put in.
aspiringsensei 16y ago
I'm partial to treasurydirect's t-bills program. No fees (except if you sell early) and short maturity.
- _delirium 16y ago
  If you're under the FDIC insurance limit, I've generally found savings accounts to pay more for the same safety. For example, ING Direct currently pays 1.10%, versus 0.15% for the 1-mo and 3-mo t-bills.
Poiesis 16y ago
I use a CD ladder for this purpose. Twelve one year CDs, each maturing on different months, set to automatically reinvest unless we decide otherwise. Works well for the people who need to have their emergency money a bit harder to get too, too. We just like getting slightly higher interest.