Financial Planning for Family Members with Special Needs

From The Charleston Mercury May 30:

You may recall that back in March I invited y’all to my 100th birthday party. I received a number of nice responses, including suggestions for the menu at the party to include “soft items” not requiring much chewing for toothless attendees. I also received a few serious responses, one from my friend and fellow fee-only financial advisor Don Bailey. Click here to read the full article.

Rent or Buy?

Rent or Buy?Last week the Wall Street Journal ran an article where readers weighed in on the question: Is Now the Time to Buy Your First House? Actually, the question of renting or buying a house is a good question for all ages to consider.

Historically, for most people, the answer has been pretty simple. “Don’t waste money on renting- buy a house as soon as you can scrape together the down payment.” A house was more than a home. It was typically one’s largest investment and the leveraged appreciation over time was fantastic. 

Everything has changed in the last five to six years. The decision today is not so easy. 

Here are some of the reasons to buy a house:

  • Own your permanent dream home for years to come
  • Get a tax break for the interest and real estate taxes paid
  • Build equity with your principal payments
  • Hopefully obtain long-term appreciation

 Here are some of the reasons to rent:

  • Payments are fixed with the monthly cost often lower than buying
  • No repairs, grass cutting or painting to do and/or pay for
  • Opportunity to invest funds elsewhere; spreading your investment risk
  • More flexibility to move quickly for business or personal reasons
  • No closing costs during buying or selling

There are free, online rent-or-buy calculators available. One is However, please be aware that there are major estimates that are required, including annual maintenance and appreciation. Even so, the site can help people focus on some key factors. As a generalization, I think it is fair to say in today’s market that renting may be better than buying for those people who might need or want to move within 3-5 years. Those who plan to stay in one spot for a longer time will likely do better to buy.

Of course, housing decisions are one of the major pieces of a complete financial plan. Every situation is different. What makes it even tougher is that the decision to buy or rent a house is typically three decisions all rolled into one; a lifestyle decision, an investment decision, and a risk management decision. Fun stuff. We love working through these decisions with our clients, of all ages.

What Would You Do With A Windfall of Money?

Money windfallDid you know that 90% of lottery winners are bankrupt within 5 years? Or that 70% of all wealth transitions fail? The reason is that most people are resistant to change and only a minority can handle it.

The questions that normally surface when coming into large sums of money can be both technical like:

  • “What should I do next?”
  • “Who can help me?”
  • “Who can I trust?”

and emotional like:

  • “How did I get this money?”
  • “How has this changed my life?”
  • “Why are people treating me differently now?”

Frankly, new wealth presents challenges that can be disorienting and possibly dangerous. It can bring on a feeling of identity dissolution – the end of your old self. In particular, if there is suddenly no economic need to work, you may need to redefine yourself. This can affect your career, relationships, and lifestyle (like home, community, and location).

There are many possible sources of wealth. You can be born to it, like a trust fund. You can inherit it as a result of someone’s death. You can win it. You can create it from the sale of a business, idea, or as an entertainer. You can earn it through stock options. You can sue for it. You can marry into it.

The ability to keep this windfall depends a lot on from where the money came. If it came via inheritance from an unexpected death, it may be seen as “blood” money and the heir will tend to lose it quickly. Money “earned” from a business sale, for example, tends to stick better.

Besides the source of the money, people’s reactions are shaped by a number of influences:

  • The windfall amount relative to your current income/net worth.
  • Your age and stage in life.
  • Your career satisfaction.
  • Your class background.
  • Your current community and social network.
  • Your family dynamics.
  • Your money style. For example, if you’re already frugal, you may have a better chance of keeping the money and vice-versa if you’re loose with money.

People who receive a windfall have a tendency to make irrational, impulsive decisions in the first few months after coming into this new-found money. Some examples of this include:

  • The desire to get rid of money via gifting.
  • Going on a spending spree.
  • Giving up control of funds.
  • The urge to move.
  • The urge to change work.
  • Feeling stuck or frozen.
  • Hanging on to inherited stock for sympathetic reasons even though you know you’d be better off diversified.
  • Doing nothing.

This emotional period can basically mirror the stages of grief. Our job as advisors is to anchor our client during this “wave” of emotions and listen to them. We help them understand their decision-making approach, focusing in on the decisions they would have made before getting this money. We can help the client realize the true value of the money. We help build the client’s support team which includes their estate planning attorney, CPA, etc. We help set goals to enable the client to “live a life that is about fulfilling their greatest potential.” And most importantly, we can urge the client to take ample time to make solid, not hasty, decisions.

Coming into a great deal of money sounds fantastic at first, but empirical studies show that without proper planning it can lead to many painful experiences and put people in worse shape emotionally, financially, and/or physically, than they were to begin with. By working with an advisor that cares, you may be part of the small minority who don’t lose their windfall and actually prospers!

Europeans Reject Austerity

Europeans reject austerityFrance, Greece and parts of Germany voted on Sunday. Their message was loud and clear: many Europeans are not prepared to go along with threats to their cherished way of life.

Francois Hollande ousted Nicolas Sarkozy, becoming the first Socialist elected president since Francois Mitterand. Mr. Hollande declared after this victory that “Austerity need not be Europe’s fate.” The new president stressed a “growth” agenda instead. The problem is that he equates growth with more government spending. French government already controls 56% of French GDP, the largest percentage in Europe. Mr. Hollande expects to balance his budget on the backs of millionaires whom he proposes should be paying a 75% income tax. Even though the French government hasn’t balanced their budget in 35 years, he is not suggesting fiscal reform; rather he has campaigned on a promise to renegotiate the German-French euro collaboration known as “Merkozy.”

Greek voters sent an even louder message against austerity in elections Sunday. They rejected the country’s two incumbent parties; supporting smaller left-and right-wing parties that campaigned against the austerity program Greece must implement in exchange for continued European financing. Apparently, Greeks want an end to the sacrifices directed by Brussels and Berlin. Now, with seven parties expected to enter Parliament, Greece has a completely fragmented government. The front-runners have until May 9th to form a coalition. Political instability may ultimately challenge the country’s future in the euro zone.

Closer to home for Angela Merkel, her Christian Democrat Union took 31% of the vote in Schleswig-Holstein to place first, but it was its lowest share of the vote since 1950. Ms. Merkel has continued to focus on policies to cut debt. Two weeks ago in Berlin, she put it this way: “You can’t spend more than you take in. You can’t live your whole life this way. Everybody knows this.” The elections Sunday show that many Europeans don’t agree.

Mr. Hollande campaigned on modifying the euro zone’s “fiscal compact” so that it not only constrains government deficits and public debt, but also promotes growth. However, according to the Economist on April 28th, his program is not suggesting slower fiscal adjustment to smooth the path of reform; he is proposing not to reform at all. With the Dutch government brought down over deep budget cuts and the election results from Sunday, the “balance” in Europe may be changing. More Europeans are rejecting austerity. If Europe is not collectively willing to pursue painful reforms, can the euro survive?

Survey Shows… Investors Seeking More Advice

High Net Worth Investor surveyIn a recent survey conducted by Koski Research and released by Charles Schwab, 37% of high net worth (HNW) investors say their desire for investment advice has increased over the past four years. HNW investors said they are worried about risks home and abroad. These include federal government deficits, political gridlock, the economic crisis in Europe, and uncertainty about taxes and inflation.

Koski Research polled 504 HNW investors between the ages of 34 and 80 with a minimum of $1 million in investable assets. The survey was conducted using an online panel of general investors. Koski is not affiliated or employed by Schwab.

When HNW investors were asked what words first come to mind about working with a financial advisor, investors stated knowledge (71%), advice (59%), investment performance (49%), trust (48%) and service (47%). Bernie Clark of Schwab put it this way, “Investors are bombarded daily with market and economic information, and advisors play a valuable role as trusted guides in helping clients separate the noise from the news and translating that information into tailored strategies that will help clients meet their long term goals.” Among professionals that HNW investors trust, doctors and advisors are the top two most trusted.

Koski Research also conducted a companion survey of 900 Registered Investment Advisors, including DWM. They asked RIAs about many topics, including the role of women in client relationships. Their findings confirmed our experience- that women are key decision makers in most of the client relationships. The survey found that 21% of the time a woman is the sole or primary decision marker. 38% of the time, a woman was part of a couple making joint decisions.

Lastly, the survey confirmed another key fact, that RIAs, like DWM, are attracting new business. The biggest single source has been investors leaving brokerage firms. 40% of HNW investors first learned of their primary financial advisor by way of a referral from a friend, colleague or family member. This is all good news for DWM. We are definitely experiencing increased demand for our services. We continue to welcome new business, especially referrals from friends, clients and associates. Thanks for thinking of us.