For those of you that have used them, how and when did you decide it was the right time?
OT - Financial advisors
- Thread starter Seinfeld
- Start date
It was pretty much a fait accompli. 
One of the first people I saw when I started the retirement process from PERS last year was a colleague who formerly worked at the same place before becoming a financial advisor and was visiting HR.
We exchanged phone numbers and he gave me his business card.
One of the first people I saw when I started the retirement process from PERS last year was a colleague who formerly worked at the same place before becoming a financial advisor and was visiting HR.
We exchanged phone numbers and he gave me his business card.
One. Only deal with a fee based financial advisor who does not receive any compensation or commissions from the investments he recommends.
Two. Only hire an investment advisor when you have enough invested to justify the fee.
Three. Until then, pay down debts, live within your income (actually a little below), invest in 4* or 5* Morningstar rated mutual funds (index or target date funds are a good option).
Two. Only hire an investment advisor when you have enough invested to justify the fee.
Three. Until then, pay down debts, live within your income (actually a little below), invest in 4* or 5* Morningstar rated mutual funds (index or target date funds are a good option).
I'll speak as one.
Everything that we can do, can be done on your own if your willing to invest the time and maintain the necessary discipline. The math also clearly says very few individuals actually accomplish this. Find one that includes YOUR team (spouse or future executor, CPAs, etc.) in any necessary decisions.
Unfortunately plenty of bad apples too. Avoid commission-based or "insurance-only" advisors.
Everything that we can do, can be done on your own if your willing to invest the time and maintain the necessary discipline. The math also clearly says very few individuals actually accomplish this. Find one that includes YOUR team (spouse or future executor, CPAs, etc.) in any necessary decisions.
Unfortunately plenty of bad apples too. Avoid commission-based or "insurance-only" advisors.
*3 I'd add if you can't afford to max out your 401k or Roth then you probably don't need a financial adviser yet....assuming you are doing the fundamentals that you mentioned in 3.
Honestly, it takes a really great investment mind to outpace what you can do yourself with ETFs that are now available. I could see value if they had some helpful financial planning/tax advice to go along with great investment knowledge.
Caveat, if you know nothing about investing or the market, and/or are just uncomfortable with the idea of doing it yourself, get an investment adviser. I only use SEC registered RIA. For fee based, it is not uncommon to see people charge from 1.0% to 2.0% of assets under management for accounts less than $1MM. Once you get into 7 figures, you should expect to begin to slide down to 0.75 or even 0.5 if you have a large portfolio.
ETA: if you are at a point in life that your portfolio will be 75% or more fixed income, it may very well be worth finding an adviser who specializes in that area as they may have access to some investment instruments that you do not have as an individual
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As one of the non professionals ready to jump in and offer their two cents, one of the biggest things I’ve seen people I know struggle with is paying debt at low interest rates when they can get better returns elsewhere. Saw a lot of people in school with me put all this effort into paying off $250k at 6.8% as aggressively as possible (me included for a year or so). I refinanced and got 3.25% on 30 years and have gotten 12% annual return on investment since then (will likely drop a little). I’m younger, so have diversified a little but primarily holding it in stocks with some short term in a money market.
Good point. Think of your house as part of your portfolio real estate allocation and treat it as such by considering what you pay in mortgage interest vs what you can get in other investments. Key to this strategy is understanding that your house is an illiquid investment that is only priced by the market when you ask the market to price it (i.e. when you try to sell). Short of a HELOC, there is no quick way to raise a clearly defined amount of capital from your house if you find yourself in a cash crunch.
You mean that whole life isn't the best "guaranteed" investment out there even if my insurance company trained "investment guy" says so?*** To this point, be careful about guys who are just insurance guys who have named their "firm" as if it were a regular private wealth management firm. I always ask, who are you affiliated with and where do you custody funds. If the answer is <insert big insurance company here> then I pass.
After using an "advisor" for a while it was very easy for me to decide it was the "right time" to fire his dumb *** and go back to managing my own affairs .
All great points, but I would tweak the last bit of #3. Morningstar has recently leaned more heavily on a quantitative performance ranking (recent 1 & 3 year performance) vs long-term fund history and methodology, and as you probably know can that lead into momentum chasing. It works fine in up-trending markets but comes completely apart during market transitions. Target date retirement funds can also be too conservative based if the client is behind where they need to be investment wise.
Appreciate all the feedback. Up to this point, I’ve done my best for 20 years to only take on smart debt, dump as much as I can into 401k, and to put money back for future expenses like college.
However, while I definitely don’t have millions in retirement savings, it’s reaching that point where it catches your eye more so than before when an index fund outpaces your portfolio by 1-2%. Also, while I’ve still got a few years left on the mortgage, it won’t be too long before it’s paid off, and I’m gonna have a decision to make as to what to do with that monthly $.
I feel like I’m doing a lot of the right things, but I guess I’m just wondering if it’s time to sit down with someone that can basically say… “if these are your retirement goals, here’s what you need to be doing now and over the next 15 years”
However, while I definitely don’t have millions in retirement savings, it’s reaching that point where it catches your eye more so than before when an index fund outpaces your portfolio by 1-2%. Also, while I’ve still got a few years left on the mortgage, it won’t be too long before it’s paid off, and I’m gonna have a decision to make as to what to do with that monthly $.
I feel like I’m doing a lot of the right things, but I guess I’m just wondering if it’s time to sit down with someone that can basically say… “if these are your retirement goals, here’s what you need to be doing now and over the next 15 years”
Im in a similar boat. The problem I have with the idea of a financial advisor is, if markets go the way they're "supposed" to, what do I need one for? And if markets don't, will he be doing something other than assuming they will? I don't see a gain.
Here's a pretty good and balanced article I found.
Are Financial Advisors Worth It? – Forbes Advisor
Are Financial Advisors Worth It? – Forbes Advisor
I thought Tucker Carlson's interview with the Wolf of Wall Street was very interesting...
I'd second this with the caveat that you don't need one until you are maxing out your 401k and a roth.
If you max out a 401k and roth and put it into index funds and do nothing else, you're probably not going to find an advisor that is going to do better by enough to cover their cost. That said, you do need to look at your 401k, particularly if you're at a smaller company. I've seen some really, really ****** 401k's with bad options and high fees. I think there have been laws/regs passed that have stopped the worst abuses, but I'm not positive.
The other caveat is that if you really just aren't financially savvy, it can easily be worth a few hundred dollars to pay somebody to review your finances and give you pointers and a plan. You really probably need to track your spending for a little while and categorize it for that to be worth while (which is a bridge too far for a lot of people), but there's almost certainly something stupid you're doing out of ignorance that you could fix without a lot of impact to your quality of life. If nothing else, you'll probably find out you're spending way above average on some things for your income level, some of which you may decide are worth it and what you want to spend money on, and some of which you decide are not worth it.
That was a really stupid mistake I made early on. Not only was I paying down relatively low interest debt like my hair was on fire, I was doing that while not maxing out our 401ks, which probably would have reduced our MAGI enough to make student loan interest deductible early on and who knows what other benefits we might have qualified for.
This is me. I don't understand investing - at all. I have a 401K from a previous employer that I rolled into private IRA. I have an investment advisor that handles that, along with college accounts.
My current 401K is just in a target date fund.
But if you pay your house off - suddenly that income that was going to a house payment is now liquid. So I guess I don't quite understand this course of action. It also doesn't consider risk, as Dave Ramsey would say.
I'm not the best example of doing this, as I am about to move and will be taking on a bigger mortgage. But my plan is to downsize in about 6-7 years, and thus essentially would pay off the house at that point. All that to say - I'm still an advocate of paying the house off as soon as possible, regardless of interest rate.
I would say Dave Ramsey's strategy doesn't do a good job of considering risk. If you are dropping all of your spare cash after 3 to 6 months expenses into your house, you have 3 to 6 months of expenses and if something happens, you likely can't pull equity out of your house easily or cheaply because "something happening" likely means an income shock, either a loss of job or an illness/injury that is going to decrease your income and hurt you in any second mortgage or heloc application. Combine that risk with the fact that if you have a low interest mortgage, you are
likely earning a spread, and it makes it more compelling to me to invest that money rather than pay down mortgage debt.
At the very least, I wouldn't pay off a low interest mortgage unless I've got money leftover after maxing out every tax advantaged option I have. You just can't go back and use those advantages after the mortgage is paid off.
Also, I would argue that if you're young, there is just never a time that you should be investing significant amounts in 3% fixed interest bonds, which is sort of what paying down a low interest mortgage is like. Just too much time on your side to be giving up potential returns of an index fund for a fixed return that low.
My mortgage is a 30 year at 2.75%. I’m 3 years into it and could pay it off if I wanted to immediately. This is where the Ramsey model fails. Why not invest that cash instead of paying it off? I would be a fool to pay it off.
Surely you could get another job in 6 months? That's the purpose of the emergency fund, so you have the money available.
I don't see why you'd be a fool, at all.
I think the issue here is that in order to pay it off, you’re going to burn through a big chunk of existing liquidity, so you didn’t really gain anything. You’re just trading existing liquidity for the idea of future liquidity
Then, while I’m not saying that anyone here would do this, the next problem is when people pay off the last 7 years a mortgage with a 3% interest rate only to splurge on a boat, exotic vacations, etc. Don’t get me wrong… I’m a big believer in people spending their hard earned $ on what they enjoy, but this kinda stuff isn’t anything that Ramsey will ever endorse
I've discovered a couple of useful resources recently. I don't claim to have all the answers, but I know much more than I did a few months ago:
1. The Jill on Money podcast is a daily podcast, and nearly every day she helps a caller answer questions like "Am I on track?" and "Do I have enough to retire?".
2. NewRetirement.com - A retirement calculator on steroids. I liked it enough to pay for a year's premium subscription
I put my house on a 15 year amortization but other than that make no extra payments. At about 28, I made the decision just to start fully funding my 401-k and build a budget based on that. We were having one first kid at the time and just seemed like a good plan. Meanwhile, I had several friends throwing every dollar they had at their mortgage payment while sitting at sub 5% and in most cases sub 4% rate. Those friends have a mortgage with about $100 to $150k less than mine now due to the extra payments but my 401-k has about $250k more than at least one particular close friend that took the debt pay down method.
Everyone certainly has to do what makes them comfortable and I’m a debt adverse guy too, just seemed to me that rather than pay off cheap debt I should take advantage of a stock market that was constantly going up.
I don't dislike either way. Especially on a 15-year mortgage.
Main thing I was disputing is whether someone is dumb for paying off a mortgage. I don't think so. It really all boils down to the discipline needed to attack whatever plan you choose. Many people use that extra money (that we are talking about going to a mortgage or investment) in restaurants and on vacations, like what @Seinfeld said.
I mean hell I am about to take on more mortgage but probably not invest extra either. So I'm a bad example. I am really just trying to slowly build wealth through property value and the retirement investments and manage to not have my kids become morons. I'm about at the point to where I just teach them to get started early, so they can get into real estate and make the real money. Doing what I did is for the middle class sheep.
Odds are you are right. But if “2008” hits again, which it will someday, whether that is tomorrow or whether it’s 2048, then suddenly the truth of “I could pay it off immediately” evaporates when your investment gets chopped in half. There is an unbelievable peace to owning your home, mortgage-free, which no bank can ever come take away from you. If it has a slightly negative impact on your net worth in the long run, then so be it.
I agree completely. Having a paid for home is so choice, if you have the means I highly recommend it. There is no realistic ammount of money in the bank I would take to go back to having a mortgage.
Sienfeld,
There is no reason to use an advisor. I will give you two books which will teach you all you need to know about finance. One is "The Richest Man In Babylon". The other is John Bogle's "Little Book of Common Sense Investing"
You read those two and you will have all the head knowledge you need.
There is no reason to use an advisor. I will give you two books which will teach you all you need to know about finance. One is "The Richest Man In Babylon". The other is John Bogle's "Little Book of Common Sense Investing"
You read those two and you will have all the head knowledge you need.
People need to realize your home is NOT primarily a financial asset. It is your home. You cannot sell it without incurring significant additional cost, either to replace it or to pay rent. I'm fine with not prepaying your mortgage, but you do need to be on schedule to pay your home off by age 55-60 at the latest. There is great financial security in going into your retirement with zero housing cost, other than insurance, taxes and repairs/maintenance.
Dave Ramsey does not say to drop all your spare cash into paying off a home. Once your only debt is your home you slow down, resume investing and saving, and pay off the house with intentionality.
With a six month emergency fund, almost certainly, or else just acknowledge that you were promoted beyond your marketability. With a 3 month emergency fund, probably, but definitely less of a sure thing, especially as you move up the corporate ladder. But it's not just a job loss. If one spouse has a major health issue and the other takes off to help care for him/her, that's a problem that very possible won't resolve itself in 3 months and maybe not 6. If one spouse goes on disability, even with a good long term disability policy, you probably need more than 6 months of runway to try to adjust to that. Same if you have a child born with health issues. If you have a parent or inlaw have a health issue that one of you wants to take time off to help care for them.
And it's not just about bad stuff. It's nice to have some liquidity when opportunities come along. I had opportunities in 2009 and 2015 I passed on because I didn't have the liquidity. Had I been a little smarter with respect to debt and the value of optionality, my networth and income at the time would have been exactly the same, but I would have been able to make the investments I had to pass on. One of the few smart financial moves I've ever made is go get debt on everything I could in 2020 and 2021 for as long as the bank would loan it too me. Most of what I borrowed against has more or less held it's nominal value because of inflation, the house has gone up in value, and the things I bought are worth more even after inflation.
Fool might be a strong word but right now I've got money in a money market account making more than a 1% more than my mortgage costs me. I'm essentially getting paid >1% to borrow against the house and put it in a money market. If I wanted to lock up my money for even just 8 months, I could get a 2% spread. I could buy a ten year treasury and not only get a greater than 1% spread, if interest rates drop I'd get appreciation (granted I'd be at risk of depreciation if interest rates moved up, but I could just hold onto it and keep collecting the spread if that happened).
What would be the advantage of paying off the mortgage when you can get paid to not pay it off, and you can access your money at any time and pay it off if you choose?
Yes, your pricing your risk aversion into your return and that is 100% the way to go.
As long as you understand the fundamentals such as Risk vs Return, Time Value of Money and Compound interest then it really is a personal choice.
The conservative nature in me wants to pay off my house to know I owe nobody nuffing but the Finance guy in me wants to put the interest spread to work in the market. Both are good choices based on your sensitivity to risk.
I'll make it even easier than that:
Understand Risk vs Return
Understand Time Value of Money
Understand Compound Interest
Know your Risk Aversion
There I just gave you a BA in Finance ***
On paper, sure. Ramsey’s advice is based on what most people do. They end up not investing it like their paper examples shows is superior. He’s also considering the psychological effects of being debt free. According to his research, once people are debt free, they accumulate wealth much faster due to decisions they make. If you don’t agree, take it up with him, but his plan isn’t just “pay off 2.75% interest instead of making 12%”.
Half my note is literally Taxes and Insurance....that alone makes me not want to pay it off even though I know I'd be saving half and increasing monthly cash flow....analysis by paralysis ****
Ramsey's best quality is a lot of his advice does a good job of taking human imperfections into account. The debt snowball is a perfect example of this (plus has some benefits for risk management by lowering minimum monthly payments faster). The 15 versus 30 year mortgage is a less perfect example of this. Yes, a lot of people may spend the difference b/w a 30 year and 15 mortgage rather than invest it, but if you can't max your 401k and roth on a 15, then it's much easier to follow through with the investment part. You just set it and forget it. And once your to the point where you have the option of paying off your mortgage or investing, absent an inheritance or some other windfall, you probably have an established track record of being disciplined and should have a decent idea of whether you're likely to spend more because you have that money invested somewhere liquid rather than in home equity.
And unless something has changed, I would not trust anything he says about their research. The few things I've heard him say about their research he gives stats that have major and obvious selection biases of one sort or another, whether it be survivorship bias, volunteer bias, or just general sampling problems.
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