Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Monday, December 14, 2020

Credit Score Questions

Written by Chanda Davis

What is a credit score? Your credit score is a number that represents your credit worthiness, history, and potential risk to lenders. The higher your score, the lower the rate on your loan.

How do I know my credit score? Visit www.ficoscore.com/where-to-get-fico-scores for the most accurate credit score. Be careful that you do not obtain your credit score from a third-party agency (such as creditkarma.com). Scores obtained here may be significantly higher or lower than the FICO score your lender will use. If you get turned down for credit, you have the right to get your score free of charge. 

 

How is my credit score calculated? Your score is calculated from your credit history. Five factors affect your score:  Payment History; Credit Utilization; Length of Credit History; New Credit; Types of Credit in Use. Payment History is the most important piece. If you want to improve your score, PAY YOUR BILLS ON TIME! For more information on your credit score calculations, check out this video..

 

How can I obtain a copy of my credit report? Your credit report will help you understand what factors are driving your credit score. Visit www.annualcreditreport.com. Here you can request a copy of your credit report annually, at no cost to you. Carefully review the details. Make sure there are no mistakes in your credit history report. You have the right to have any mistakes corrected.

 

What’s a good score? That depends on the type of loan you are seeking, but some general rules apply. A score of 700 or more is considered good and will get you most loans at a reasonable rate. A score of 600 or less means you are riskier for lenders. You may not get approved, or if you do, the rate on the loan may be high. A score of 800 or more puts you in the driver’s seat (literally, if you’re trying to buy a car). Lenders will fall all over themselves to lend you money. Need more?

https://www.experian.com/blogs/ask-experian/credit-education/score-basics/what-is-a-good-credit-score/  

 

How do I improve my score? Time and good financial behavior are the best ways to improve a poor score. Pay down debt. Pay your bills on time. Show you can handle different types of debt. Hold onto old credit cards that show a good history. Close old cards that you haven’t used in a long time. Don’t open new cards.

 

How often should I check my credit score? At least once a year. Mistakes do happen, and you want those corrected as quickly as possible. 

 

What is the bottom line? A good credit score is like money in the bank. You’ll be able to get a loan at a good rate when you need it. Lower rates mean you can buy more house, more car, and more stuff for the same amount of money. 

 

Friday, December 11, 2020

Leaving Money on the Table

Social Security is a big part of anyone’s retirement income. On average, it represents more than 40% of overall income. Depending on circumstances, that can be more. 

It’s also a great investment. While nearly half take their benefits at the earliest time (age 62, unless you’re a widow), this decision leaves a lot of money on the table. Every month, up until age 70, that you delay taking benefits past age 62 results in 2/3 of a percent more on your benefit. That’s 8% a year! And it’s guaranteed! You can’t find that anywhere else.

 

It’s the reason we often encourage people to delay their benefits as long as possible. Know that the decision to start collecting Social Security and the decision to retire are two different decisions. They are not necessarily linked. For those with little savings and no pensions, starting SS at retirement is a must. It’s the only way to have income in retirement, but if you have other means, the two aren’t joined at the hip. Think twice before you pull the trigger on benefits. Much higher payments in the future may make waiting worth it.

 

Know that your benefits are based on your earnings record, so it’s important to monitor this for errors. Your retirement benefit is based on your highest 35 years of earnings, and these are adjusted for inflation. That makes earlier/older earnings quite important. Sign up for your own account at Social Security to track earnings and benefits. 

 

Employers only report earnings to SS one time a year, so your expanded benefits might not be fully reflected in your current payment. The lag in your earnings record may result in a lag in the benefit calculation. Don’t worry, though. The difference will be made up in the next year.

 

Now that we sign up newborns for a Social Security number, we know which baby names are the most popular. In 2020, it was Liam, Noah, and Oliver for boys. And Olivia, Emma, and Ava for girls. Hmmm… think Nancy was WAY down the list!

Thursday, November 05, 2020

What is the value of Professional Designations?

People often ask about certifications and licenses that financial advisors have. With over two hundred Professional Designations recognized by FINRA (one of our regulatory bodies) this is an important question!

Professional Designations or certifications indicate some particular expertise or knowledge about a subject. There are certifications relating to estate planning, retirement planning, college finance, insurance and every other personal finance topic imaginable. Certifications generally go above and beyond the qualifying exams that FINRA administers. These exams, known as the series exams, "ensure that an individual acquires a minimum level of understanding and expertise."

Financial professionals like myself may pursue a professional designation to gain in depth knowledge of a subject, experience in a new topic or just to stand out in the crowd by showing off how clever we are. To that end, I was looking up estate planning designations today when I noticed something odd:

Some designations were flimsy, and some were downright vapid.

I don't want to give too much attention to this obvious grift, but the Registered Estate Planner designation is devoid of any meaning. There are no education requirements, no exam, no way to verify or complain about individuals and practically no experience pre-requisite. Their website touts designations like "Registered Investment Banker" Registered Legal Professional" or "Registered Health Insurance Professional" all for people who may not have much knowledge, expertise or relevant work experience.


When people ask me what my certifications mean, I can tell them with pride about the hundreds of hours of study, the exams and the years of experience that it took. I had a very supportive work environment and a local chapter to lean on to earn the CFA Charter. I may pursue other designations for formal education in topics relevant to my clients lives, so that I can better serve them.

Bot for those looking for a financial professional, keep in mind, not all designations are created equally, and some are not even worth the paper they are printed on.

Friday, October 09, 2020

Reading Along With Ryder Part 5: What Were We Thinking?!

Cleaning all of these magazines off of my desk is hard for me, because I don't want to miss out on the knowledge they contain. To alleviate this, I will summarize one article from each magazine as I clear it away. Click here for the last article I read.

Sorting through old magazines today a few bold headlines from Januarycaught my eye:

DON'T COUNT ON A RECESSION THIS YEAR

and

ANALYSTS SEE NO FINISH TO BULL MARKET RUN

How did those turn out?

The first article (please note they have since changed the headline!), from the January 6th issue of Investment News, was an interview with Mohamed El-Erian, Chief Economic Adviser at Allianz and perhaps better known from his time at PIMCO with the legendary Bill Gross. El-Erian pointed to strong households supporting the economy and central bank provided liquidity driving further increases in the market.

While the headline prediction of no recession did not bear out, he was still largely correct in his thinking. Strong households did support the economy, when people were laid off, enhanced unemployment benefits made sure that people kept spending and the pain of recession was ameliorated. Liquidity did drive gains in the stock market. Support from the federal reserve bolstered faith in the markets and kept them well functioning after a sharp selloff in February and March.

Speaking of predictions, El-Erian also predicted that the Patriots would win the Super Bowl. He didn't get this quite right either, in Super Bowl LIV, the Kansas City Chiefs beat the San Francisco 49ers 31 - 20.

Looking back, the headline prediction was dead wrong, but the insight he gave in the interview was sound!



The second article, from the January 13th issue of Pensions and Investments, actually starts hedging their bets in the sub-title saying "big stock returns are unlikely." It cited some dark clouds lifting: a US China trade deal shaping up and clarity emerging on Brexit and Middle East tensions subsiding. Overall, improved trade dominated the economic outlook from Schroders, PLC - a British asset manager.

Unfortunately for these predictions, the impact of COVID-19 restrictions was to bring global trade to a grinding halt. Stories after March focused more on good sitting in docks, waiting approval to come in or a buyer to take them out.

The article did hedge, noting that equity markets had performed very well in 2019, and were unlikely to repeat the feat in 2020. Markets have been a mixed bag this year, giving us a 10% rise followed by a 30% fall, only to bounce back completely by August. The article noted key risks to the economy were still political: trade deals negotiations, inequality and the looming US presidential election.

I've included the industry forecasts for your entertainment below.



As a bonus, The Economist had a whole list of predictions for the coming year. They were looking forward to the Tokyo Olympics and the Dubai World Expo (both since postponed to 2021) and thought that we would all be talking about big anniversaries: Beetoven's 250th birthday, the 100th Anniversary of Prohibition (celebrated at the Mississippi History Museum!) and 50 years since the Beatles broke up. Aptly, they did predict that more quality entertainbent would be available to stream online, but insisted that people would watch the new James Bond in theaters, or travel to Cairo to visit the Grand Egyptian Museum.



COVID-19 took us all by surprise. Even the most pessimistic predictions I remember did not include the death toll or economic interruption that we have had. While I will readily admit I was too optimistic when the news first broke, I am still not so pessimistic to think that it will hamper us for years to come. I don't know how the disease will end, but I know it will not end human innovation and desire to connect.

Wednesday, September 23, 2020

How To Give

When we talk about financial values with clients, we are talking about their deepest connections between their money and the world they live in. Many people want to give back to communities and institutions that gave much to them or support more distant causes that align with the world they wish to see. Helping give money away is both a joy and a challenge. 

I am deeply involved in giving back to my high school:
this was at an alumni reunion

Besides figuring out how much and to whom you want to give, there are many different vehicles and tax treatments for gifts: Any charity will take cash, and when you give cash, you can deduct that from your taxes when you itemize deductions. If you don't itemize, you may be able to give directly from an IRA and simply not recognize the income, getting the same benefit as a deduction. Many larger charities will accept donations of appreciated stock. This allows you to take a tax deduction on the market value of the gift, while avoiding paying capital gains tax on 

What if you could get the best of all of these benefits? A
is a special type of charitable account that gives you the ability to:

  • Give large gifts!
  • Make the gift as easy as possible for the receiving charity.
  • Have exact control over the timing, frequency and size of ongoing gifts.
  • Take large tax deductions, in the tax year you need them most.
  • Avoid paying capital gains on appreciated stock.

So, how does it work? A Donor Advised Fund is administered by a special type of non-profit that handles the regulatory compliance of complex charitable giving for you. You simply open an account and fund it with either cash or appreciated stock or property. Like giving to a charity, you receive a tax deduction in the year that you move the money into the DAF account. This allows you to give large gifts of appreciated stock in years that you need to take a particularly large tax deduction. This also allows you to lump multiple years of donations into one tax year, especially if your giving doesn't normally exceed your standard deduction. When you want to send money to a charity, you just instruct, or "advise," that funds be granted out to the charity.

What sort of problems does it solve? Using a Donor Advised Fund allows you more control over what assets you use to donate and what tax years you take your deductions. This is very useful for if you give to charity regularly, but don't give enough to need to itemize deductions. If you have large or recurring gifts, the DAF sends out a check or bank transfer directly to the charity, making it quicker and easier for them to receive and administer than sending stock or getting them to set up a recurring donation. There are great tax benefits to you and great cost and effort savings to the receiving charity.

Where can I open an account like this? If you work with an investment advisor, they can set up an account for you. We custody through TD Ameritrade and use American Endowment Foundation or iGiftFund to administer the accounts. Charles Schwab also has a very user friendly account.

What next? If you are a frequent and generous donor to charitable causes, have appreciated stock you would like to give or simply want more control over your charitable donations, a Donor Advised Fund may make sense for you. Check out Schwab Charitable, or work with your advisor to open one!