Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Wednesday, February 15, 2017

What conflicts do we have?

In a recent post at the Wall Street Journal, Jason Zweig points out that even though just about everyone who will work with your investments will now be required to be a fiduciary, conflicts of interest abound. A fiduciary is required to make all decisions in your best interest. Generally, this means avoiding conflicts of interest, but motivations are tricky things, and conflicts can be found just about anywhere.

At New Perspectives, we have been fiduciaries from the get-go. Nancy and I are both CFA charterholders and are proud of the fact that we hold ourselves to such a high standard. From what I have seen from clients that come to us, acting in a client's best interest not only makes sense, but can be very profitable for the client themselves. When past advisors have not acted in the client's best interest, their accounts have suffered.

So the best time to be skeptical and understand your adviser’s obligations is when you’re hiring the person in the first place, before that bond of trust has fused you together.
Ask whether the adviser gets compensated by anyone but you, and why. Request a written commitment to act as a fiduciary. Ask him to tell you about three conflicts of interest that might arise; if he tells you he doesn’t have any, put your hand on your wallet and leave immediately. Whether he’s called a fiduciary or not, that’s someone who’s either fooling himself or trying to fool you.

Reading that last paragraph really hit home to me. We preach a no-conflict relationship with our clients every time we see them. A fiduciary relationship is clearly spelled out in our contract. We don't just call ourselves fiduciaries, we are fiduciaries. To think that we might have substantial conflicts doesn't appear to align with what we say!

But I accept the challenge! I thought through our motivations to see what conflicts we may have.

To start, we are fee only advisors. Literally our only source of income is clients paying us for advice. For clients that just pay us for hourly advice, we strive to make sure we do not spend unnecessary time on a task or bill them for doing something not strictly relevant to the advice we are giving them. For clients who pay us an ongoing fee to manage accounts, our clear motivation is to keep managing their money and to manage more of it! Here is how some conflicts might arise.

  • We are motivated to manage as much of your money as possible. If a client has a lot of cash or outside investments, we would want to manage that as well. To mitigate this, we typically recommend that people leave cash in a bank they are comfortable doing business with and give an honest assessment of whether or not we think their assets would be better managed under our umbrella. If the assets would be better left alone, we make it clear what the differences would be to the client. While a conflict may exist here, we are aware of it and still make decisions in the best interest of the client.
  • While we do not have any performance-related fee on accounts, we are still motivated for them to grow. We know, however, that short term performance will likely increase long term risks in a client's portfolio. Our motivation is to prudently serve a client over time, not just for another quarter. Our portfolio decisions are still made with the client and current market conditions in mind.
  • It is often thought that we prefer only large accounts and will therefore pay less attention to smaller accounts. While a conflict may exist where we prefer to service a larger account, the set up of our office and the technology available to us makes this concern practically nonexistent. We can trade in a small account just as easily as a large account, and the other financial advice needs of one average human are the same regardless of account size. While we do service accounts of all different sizes for people of all different needs, all clients get the best service we can offer.
  • We may have a motivation to post higher numbers at the end of a quarter (when we bill) but that is not technically possible with us. Our assets are held at a third party, and any report we make can be verified with them. Additionally, our clients are invested in publicly traded securities with easily verifiable values. If we boosted those numbers, it would be worse than a conflict; it would be fraud. In that vein, we have a section of our website dedicated to the ways that clients are protected form possible conflicts, malfeasance or incompetence.

In light of all this, I am still comfortable telling clients that we will work in their best interest. We do see conflicts arise during decision making, but we will always act in our clients best interest. We truly believe that our long term best interest is only served by serving our clients best interest every day.

Wednesday, January 25, 2017

Experience Civic Duty in a new way - Do your own taxes!

Executive summary:
  • Taxes are due 18 April 2017. Do them!
  • To start, gather ALL relevant financial documents.
  • Here are the only instructions you will need for doing your taxes: Read each line carefully. Fill it out appropriately and move to the next line. Repeat.
  • Online solutions can walk you through the process and you may be able to file for free!
Griping about taxes is a proud American ritual. It takes up more of our time than Super Bowl preparation, Fourth of July celebrating and comparing our state to neighboring states combined. It takes slightly less of our time than the presidential election season. We gripe about taxes for good reason - they are complicated to do. Even if you don't owe much, or anything, the process of doing your own taxes may seem daunting. Many people hand off this arduous task to a CPA or another tax preparer so that they don't have to deal with it.

While I encourage everyone to try their hand at doing their taxes by hand at least once, there are plenty of tools out there to help you through the process. If you don't want anything to do with the process, you can pay someone to do them for you. Just a quick note of caution when hiring someone else - there are no qualifications to be a tax preparer. While there are plenty of people who can do your taxes, there is no minimum qualification required by the IRS nor is there any regulation of the field. You are on your own here. My advice is to look to a reputable shop that is open year round (there are always plenty of fly by night places around this time of year) or turn to a CPA - a Certified Public Accountant. CPAs are highly qualified accountants who are best prepared for larger or more complicated returns. Bear in mind they will be more expensive, but worth it if you are not doing it yourself.

Step One is taking a couple of deep breaths. Doing your taxes is probably less complicated than you think. No pressure, but it is also your civic duty as an American.

Step Two to doing your taxes is gathering all of your documents. Any mail you have received that says "important tax documents enclosed" probably has something relevant to the process. You should expect to have a tax form for every financial account you have - bank accounts, brokerage accounts, retirement accounts, loans etc. You will also have a tax form from every source of income - jobs, freelance or contracted work. The most common, most important information is as follows:

  • Work/Income - how much did you earn? How much tax was paid on your behalf?
  • Bank accounts - how much interest did you earn?
  • Retirement accounts - how much did you contribute or withdraw?
  • Brokerage accounts  - did you realize any gains or losses this past year?
  • Mortgage and student loans - how much interest did you pay?
Also gather documents on rental income you received or businesses you own. There are a slew of income sources and deductible expenses that you can walk through and find.

You will also need to know if you are married or if you had any children in your possession last year. Generally speaking, if you possessed a child for more than half of the year (joint custody, kidnapping, etc) you get to claim them as a dependent.

Step Three is a good time to learn the lingo. If you have a regular job that has benefits and withholds taxes from your paycheck, you will have a W-2 from them. Your contract employers, banks and brokerage firms will send you a 1099. These both show types of income. The main filing form is called a 1040 and you report more details for that on your Schedule C, D, or E. Be careful though if you are self employed as you will need the 1040 Schedule SE. If you paid tuition last year or are claiming an education credit you will need to fill out form 8917 or 8863. If you have a low income and a large family you will want to check on Schedule EIC. If your household help considers you their employer check out Schedule H and if you paid taxes to a foreign government you might get that back on Form 1116.

All of these forms are available on www.IRS.gov and paper copies are available at local libraries, by request or through your own printer. The core filing is the Form 1040, all other forms and schedules come off of that.

Step Four - take another deep breath. Remember, the maintenance of the Republic is in your hands here.

Step Five - decide the best route for filing your taxes. If you don't have a lot of forms, maybe just a W-2 from work and a 1099 from your bank showing $11 in interest, you could do this easily yourself by hand. Online programs like TurboTax or H&R Block can walk you through the process fairly efficiently if you have all of your documents gathered. You typically get a free filing for simple returns at lower incomes. If you don't qualify for a free filing, these online tools can still help you figure out what you owe and what to put on a paper filing.

If you have more complicated taxes, particularly if you own a business, you may want to turn to a CPA. A CPA will typically not only provide the most accurate filing for you, but can also offer tax advice on how you can reduce your taxes with expenses you incurred in the previous year, or by maximizing contributions to a retirement account appropriate for your work situation.

Let's imagine that you are filing by hand for the rest of this article.

Step Six - start walking down the Form 1040. You will learn to love this form. Or not. Maybe you won't. If you truly love America, you probably will though.

Here are the only instructions you will need for doing your taxes. Read each line carefully and ask yourself (or the instructions) if it applies to you. Fill it out appropriately and move to the next line. Repeat. If you want something more detailed than that, the IRS helpfully offers instructions for each of their forms. While they aren't always the easiest to read, they are broken out line by line, so just focus on the line at hand.

Lets start here:
This is what you see when you start looking at the form 1040.
This is the header - there shouldn't be any surprises here. If there are, we should probably talk about what it means to have a family. Knock this out and give yourself a pat on the back.

Start with your name. If you are married you will typically file jointly with your spouse. Times when you would not are if one spouse had lots of deductible expenses and a significantly lower income than the other spouse. You can figure out further down the line if this makes sense, but for most people, it will.

I like to tick the box indicating that $3 goes to the Presidential Election Campaign. While it is not abundantly clear to me that this has an impact, the general idea is that candidates that accept money from this fund are swearing off private donations. It is a hope, more so than an effective tool to keep private money out of politics. This is also pretty much the only time that you can directly choose where your tax dollars go, ironically, this makes it the least democratic and most anti-societal thing you can do on this form.

If you have children, you can put them in as dependents. If you don't, but have, for instance, kidnapped a child and held it hostage for more than half of the year, you can enter their name and social security number here. If you aren't sure if you have any children, lets just skip over this section because the questions get rather sensitive rather quickly.

That was easy want it? Take a deep breath if you like, but if you're fired up and ready to go, full steam ahead!

In this section of the 1040, you will list out ALL of your incomes from various sources.
Income. Simple concept, but this section belies how complex it actually is.

When I tell people that all there is to doing your taxes is walking down the 1040, this is a pretty good illustration of that. Read the first line (line 7). Wages, salaries and tips. Attach forms W-2. If you received any W-2s from any employers, this is where that information goes. Easy, they're just asking how much you made.

Banks and brokerages will send you information on interest and dividends (lines 8a-9b) and capital gains (line 13). Self employment income will go in line 12. Most of this stuff is fairly self explanatory - if you own a farm you will put income from that on line 18, for instance. This is where IRA income, pensions, rental property, social security benefits and more get reported.

Lets take a closer look at line 13. This will be relevant if you have investments in taxable accounts. One of the great things about capital gains is that you get to control when you realize them and losses can offset gains. You only pay taxes on the gains (difference between sale price and purchase price of the security). You can report more detailed information about these gains on Schedule D. Keeping track of your cost basis is very important. Before 2011 brokerages were not required to keep track of this vital information, so tracking it down for older investments can sometimes be a huge, time consuming hassle. The next time you hear someone gripe about millennials, remind them that at least nobody will have to waste their time tracking down our cost basis information.

If you get to line 22 and know that you haven't put some source of income down, go back and figure out where it goes. Otherwise, add everything up and pat yourself on the back.

Not so hard, huh? Recline a little more in your seat and take a well deserved deep breath and bite of chocolate.

Now that you have your TOTAL INCOME, it is time to adjust it.


In this section, you will find a few regular expenses which may lower your taxable income.
Adjusted Gross Income, or AGI, doesn't have to be an intimidating term. It is just a technical way of saying "this is my income after I account for a few things that I spent money on"

This is where you start reducing your income for tax purposes. You will end this section with an Adjusted Gross Income, or AGI. This is the basis for figuring out your taxes owed, but lets not get ahead of ourselves. Just go line by line and see if you can reduce your income with these common expenses.

Line 23 gives teachers the opportunity to deduct $250 of un-reimbursed classroom expenses. Why do teachers get their own line here? Well, we hardly pay them anything and they work long hours whilst being expressly exempt from overtime protections, we treat them as a punchline in a classic dumb joke about inability and berate them for our children's shortcomings, they raised and shaped every one of us and are the most vital defenders of the future of our nation, knocking a couple of dollars off of their taxes is quite literally the least we can do. If you want to take it a step further, buy a teacher some happy hour drinks.

If you contributed to a Health Savings Account or a personal retirement account this is where you put that information. If you are making less than $80,000 and are paying interest on student loans, you can deduct up to $2,500 of it here. Again, just take this section step by step and add everything up on line 36. Subtract that from your TOTAL INCOME on line 22 and you have arrived at your AGI.

Time for another deep breath and a bite of chocolate. Maybe take this opportunity to stretch your legs, get some fresh air, or call your senator about a pressing issue.

We have now made it to page 2.

This is where you figure out what you actually owe.
No need to fear - the second page is basically like the first page. Just take it line by line and you'll do fine.
This is a little misleading, the bulk of this section is more deductions and credits. A deduction reduces your income, but a credit reduces your taxes. Similar concept, just different calculations.

Line 38 is like the free square in Bingo - just write whatever you wrote on Line 37 to bring it to the back page. Fun, easy, relaxing.

If Line 39a is relevant to you, congratulations. You are either old or blind and you a higher deduction than standard. The handy explainer next to line 40 directs you to the instructions again, as do I. Most people will get the standard deduction, so just write that one on line 40. If you had large medical expenses, mortgage interest payments, charitable contributions or taxes paid (not including federal taxes) or a few other miscellaneous expenses, you may benefit from itemizing expenses. Check out Schedule A for more information. If these expenses add up to more than your standard deduction, itemize and send in the Schedule A along with your 1040.

41 is an easy math problem and 42 is also a fairly easy math problem on exemptions. Actually calculating your taxes is the trick of this whole sheet. If your income is simple, and only came from one or a few sources, you can probably use the tax table in the instructions. You simply put your finger on the number closest to your income, look slightly to the right of your finger, and put this number down on like 44.

There are some credits on lines 48-54 that can directly reduce the amount of tax you owe. If any of these apply add them up on line 55 and subtract that from line 47.

Don't take a break yet, the next section is still more of the same - you're in the groove, keep it rolling.

This section is basically like the last, just adds more taxes owed in that don't get credits taken out.
Annoyingly more of the same. The reason this section sits here is that these taxes are owed after credits have been taken out. Don't worry though, nothing too complicated here.

See if any of these apply to you. Critically, if you were self employed, this is where most of your taxes will come into play. You can see here that you should put that stuff on schedule SE to calculate tax owed there. There are some extra taxes that you might have owed here too.

Add everything up on line 63 and then have a BIG sigh. You just coast from here.

You've earned a drink here. Pour yourself a glass of water and stretch your back muscles out.

This is where you recount all of the times that taxes were already paid on your behalf last year.
Payments. If you have already paid taxes (on w-2 income or IRA withdrawals, for instance) note it here. This is the step before the grand reveal.
Payments should be fairly self explanatory. If you have paid taxes already or taxes have been paid on your behalf, you note that here. You will probably have this information on your W-2 or 1099's from work. There are a few last credits shoved in as well. Check this for all that you have already paid or might be owed back.

Add this all up on line 74 and queue up a drumroll in your head for the big reveal.

Do you owe more or get a refund? Find out here!
This is the moment of truth.
Line 75 has a revealing question for you. If you have been paying taxes all year (through quarterly payments or withholdings) this is where you find out if you were paying the right amount. Basically there is a number which is the taxes you owe on all of that income, and a number which you have already paid. If you owe more than you have already paid, you will move down to line 78; if you have paid more than you owe, you get to tell the IRS where to send your money back to.

The best way to get your refund is direct deposit. If you would rather split your refund up amongst several accounts, or buy a savings bond instead (weirdo) you can do that with form 8888.

Don't bother with line 77, you can pay those taxes when you get there.

If you owe taxes, pull out your checkbook or check out the fairly straightforward instructions on how to pay by phone or online.

Sign and date the form, write in your occupation and exhale.

See! That wasn't so hard.

Doing taxes yourself by hand is a useful exercise in civics. If you are just starting out in your career you will probably not have a hard time of it. The key is being organized with your documents on the front end and block out some quiet time to get things done. If that doesn't work, try an online tool or hire a professional.

Wednesday, January 11, 2017

The rich, they're not so different from you and me!

Executive Summary:
  • There are few differences between investors of different net worth, but where they vary, we can learn important lessons.
  • The very wealthy are more likely to work with advisors, are more willing to diversify investments internationally and take care to introduce their children to their advisors. 
  • In my opinion, the mass affluent can learn from this and be more financially secure.
The Rich understand that their advisors are looking out for them.


A report from Spectrum Group examining the differences between investors based on their net worth level had some interesting points. They surveyed investors ranging from Mass Affluent - those worth $100,000 - $1 Million, Millionaires - those worth $1 - 5 Million and Ultra High Net Worth - those worth over $5 Million. Amongst them, the Ultra High Net Worth were more likely to use an advisor. As an investment advisor, I could take that as great news. The clients with more money are the ones who want to work with me, right? But that likely has more to do with their very busy and complex lifestyles. They probably also have plenty of other hired "staff" to take care of details that they cannot be bothered with. In other words, having an advisor, for the UHNW crowd, is a product of their money, not the other way around.

I kept digging as the report still had some things to reveal about investor behavior.

One stereotype of the very wealthy is that they have a lot of their net worth tied up in their business. Think of Warren Buffett, Donald Trump, the Waltons and the Koch Brothers. They are fantastically wealthy and much of that wealth is tied up in businesses (some publicly traded, some private). According to the survey, about 4% of the net worth of the UHNW crowd was tied up in private business. This was the same amount as the Mass Affluent had! Maybe the UHNW folks had already sold their businesses, but maybe they were just like the rest of us (except with more money and an advisor). The big story about their net worth is that they had much more money available for liquid investments and less money tied up in their home.

Of those investable assets, people have three options, manage it themselves, hire someone to manage it, or pick somewhere in between. Reinforcing the likelihood of the very wealthy to have an advisor, they were much more likely to have someone else manage their money. 53% of the Ultra High Net Worth individuals had an advisor either manage or consult on how to manage their wealth, compared with only 41% of the Mass Affluent.

This again gets back to the UHNW needing to have someone handle some of their affairs, but there is something else here. Many less affluent investors either wrongly believe that they do not need or cannot afford professional help with their assets. This is just wrong. While any given asset manager may not be able to outperform any given benchmark, many advisors do add real value to their clients' financial lives. Our value is not in getting a few basis points over the S&P 500, but in the tens of thousands of dollars we generate for clients by optimizing pension and social security withdrawals, the details of asset location to save on taxes and the peace of mind knowing someone else is figuring out the details for them. Bad decisions and mistakes can be very costly to any investor, whether in returns never realized or actual money misspent. If all your advisor does it reduce those mistakes, they are worth something to you.

The Ultra High Net Worth investors understand the value of an advisor, and maybe that is something that the Mass Affluent could benefit from!

Amongst their top worries, the wealthy and the merely affluent are much the same. They worry about government gridlock, political environment and stock performance in broadly the same high amounts. Notable departures, however, are that the UHNW do not have to worry about inflation, as the cost of a lifestyle is not as big of an issue. They are insulated from the rising cost of basic goods and services to some extent. Additionally, they do not worry as much about interest rates that they earn on savings. When you have much more of your assets invested, the interest you earn does not have a very notable role on your income statement.

When it comes to foreign investments, the very wealthy are much more comfortable investing outside of the United States. The survey in 2016 repeated an earlier survey in 2012, and everyone has gotten a little more skittish on foreign investing. But while 50% of the very wealthy are comfortable with foreign investments, 72% of the mass affluent are adamantly opposed to it. Domestic or "home" investment bias is a big issue. While US stock returns have always been the core of US investor portfolios, they could benefit from foreign exposure. Diversification into foreign markets lowers the overall risk of portfolios and can increase returns over the long term. While foreign stock returns can be more volatile than US returns when economic and currency swings go hand in hand, investments abroad are useful sources of return when US returns are sluggish.

Foreign diversification is certainly something that most investors could probably benefit from. This is a lesson the Mass Affluent may want to pick up form the Ultra High Net Worth investors.

Lastly, Ultra High Net Worth investors are looking to future generations. They are much more likely to be active in making sure that their wealth is well-managed when they are gone. 62% of the very wealthy would introduce their children or grandchildren to their advisors versus 39% of the Mass Affluent. This is important, not just in letting your own wealth continue to have an impact but by simply getting future generations started on the right foot. While children of clients may not have large accounts themselves, as an advisor, I want everyone to be financially fit and am happy to work with people who understand the importance of an advisor. The Mass Affluent can make their next generations better off by starting those conversations and making introductions. Even if their legacy does not include a huge inheritance, it can still include financial security.

Overall, the Ultra High Net Worth appeared to be very similar to the Mass Affluent. After all, we are all just humans with the same wants and needs. The UHNW were just wealthier. There were a few significant ways in which they differ, though, and therein lie some important lessons for the Mass Affluent.


Wednesday, December 21, 2016

Investing for the End of the World



If you are preparing for the end of the world, you might be buying gold, guns, canned food and remote property in the foothills of the Rocky Mountains. After all, you will need to be self reliant for food, shelter, water and defense. Hone your large scale gardening skills now, because the canned goods will run out eventually.

The Fear Trades

When the market gets weird (read: goes down sharply, or at least 10%) there are a few investments people tend to reach for: Gold and long term US Treasuries are two of them, the Swiss Franc is sometimes another one. US Treasuries are generally viewed as a risk free asset. They are bonds, so you can easily calculate the value and the cash flows, and they are backed by the US Government, which is generally believed to be a reliable credit - recent elections notwithstanding. After all, why would the US Government default when they could just print more money to pay the bond.

Of course there are risks with that US Treasury bond: if the government does just need to print money to pay obligations, inflation will likely erode the value of the dollars you will receive. To understand this relationship, think of supply and demand. If there are more dollars being printed to chase roughly the same amount of goods and services in the economy, each dollar will be worth less in comparison to the goods or service it is buying. Another risk is interest rate risk. If interest rates rise after you buy the bond, the market value of the bond will decline. After all, why would someone pay the $100 that a 3% yield cost you if they can go out in the market and buy a 4% yield for the same price? This is a bigger risk with longer term treasuries. If you are planning on holding the bond until maturity, this does not much matter, but it can look bad on your account statements in mean time.

Gold and Swiss Francs are both viewed as stable money. Historically, gold was a unit of money, and until recently, the value of our dollar was actually measured in gold. As long as nothing too exciting is happening in the world, gold typically tracks inflation. This means that it preserves its real world value - this is why it is considered a "real" asset. Since it preserves it's value in the real world, if you fear imminent collapse of your nation, economy and currency system, it might be a nice way to hedge that fear. Investors typically either love or hate gold. "Gold Bugs" as they are known like that gold will be there for them even during rampant inflation or societal collapse while the haters just think it is a dumb shiny thing that doesn't do anything fun. It is possible that both sides are right.

My main concern with gold as something to hold if the world collapses is that there is no guarantee that people will take your gold in exchange for necessities like food and drinking water. If they did take it, you would probably need plenty of small change in gold, and a scale for measuring your gold flakes and dust. Tricky stuff. There is also a practical tax consequence that gains on the sale of gold are taxed at a minimum tax rate of 28% - potentially higher than your marginal bracket, particularly if you lost your job as society and the economy crumbled. If you traded your gold for food or services, you have some flexibility in how you report the value, particularly in a situation where there is no ready market for the goods. However, faithful reporting of income and expenses is a cornerstone of our democracy (which may well be collapsed at this point) and transactions like this may invite a time consuming audit (time better spent out there growing your food, right?).

Swiss Francs are sometimes viewed as a safe haven trade in weird times too. Switzerland is known for it's policy of neutrality, excellent chocolate and building bunkers in the Alps. It can be easy to confuse the safety and homogeneity of the country for real world economic or financial security. Maybe you can hitchhike to Switzerland when the world ends. Maybe your local cafe will take Francs when you venture down from the Rockies for a morning pick-me-up after the apocalypse. I'm not totally sure about this one.

There is a breed of investor that is permanently bearish. They often sell stocks short on generalized worries or keep the fear trades going even when it isn't working. There is always a crisis just around the corner that they believe, to the contrary of the built up evidence, humankind just won't make it through. These investors are the ultimate contrarians.

But How Will The World End?

The problem is, we don't know exactly how the world will end. Will it be a mild end, with stock markets functioning as staff moves computers to higher and higher floors as the oceans rise? Will it be all at once with an asteroid that we only saw a few months in advance? Will it sneak up behind us, cutting off one piece of our economy at a time, leaving us only with Twitter to speculate about what is actually going on?

Maybe the end of the world will even be less of an event than we anticipate. Maybe governments will fall peacefully and after a few years of anarcho-libertarian communes someone will have the idea to build a highway to their cousin's commune and we will come together to figure out how to pay for it, accidentally forming a government in the process.

However it ends, it may be on your to-do list to prepare for it. Let's explore what you can do with your investments.

If you believe that some environmental disaster will end the world, consider companies that are working to fight that. Depending on how long this disaster takes to play out, your companies could have a string of profitable quarters as they try to clean up the mess we have made or stem the tide of rising waters. Ecology & Environment or Clean Harbors specialize in cleanup of disasters sites as well as providing environmentally sustainable solutions to polluting industries. Companies that make solar panels or operate wind farms may be of interest too.

Maybe global conflict will be the downfall of man. In this case, we have plenty of defense related stocks that will benefit from military spending. Don't forget your personal safety, a company like Ruger or Smith and Wesson also outfit private individuals, mercenaries and militia right in your neighborhood! The chart at the top of this article implies that general equity investments may be the way to go. The article notes that bonds may have underperformed as inflation picked up during times of war.

The end of the world could come in a variety of ways. It is important that you take the time to think deeply about what you are most afraid of, and position your investments to protect against those fears in an appropriate manner.

When The World Is Over - What Does Anything Mean?

It might strike you as prudent to avoid investing in stocks. After all, stock markets can close for a variety of reasons, after the terrorist attacks of September 11, 2001 in New York, American markets closed for 4 days. If the market is closed, you may have a hard time selling your stocks so its best to just avoid them, right? Not so fast, your broker will still hold your stocks and may make valiant (or not so valiant) efforts to calculate their value and help you with trades. There is a robust over the counter network in the US and we are not so old that we have forgotten how to use phones (getting there, though). Transfer agents will be there to help brokerages affect trades on your behalf. In fact, when the global stock markets shut down at the beginning of WWI, brokerages continued to trade and quote securities prices, though clearly liquidity and price discovery were affected.

What if your brokerage is insolvent? A general financial crisis might bring down a couple of brokerages, but if you keep a paper copy of your latest statements you'll have a starting place if your brokerage disappears. SIPC insurance covers the first $500,000 of your cash and securities if your broker is insolvent. It is fairly common for larger brokerages to cover the next $49,500,000 of your account with private insurance. If you are concerned about this, you should take note of that insurer in fas you need to file a claim. It is important to note that SIPC does not protect against fraud if you never actually held the securities, or against the loss of value. They really just protect the custody function - the safekeeping and access to your securities.

If brokerage insolvency or exchange shutdown is the specific risk you are trying to protect against, try keeping your stocks all in paper certificate form. While a burglary is probably more likely to strike your home than an exchange outage, fear is not rational. I generally do not advise that people keep paper certificates. Not only are they more likely to get stolen, but they are much harder to trade and generally have much higher fee structures than an account at a discount broker. If worse comes to worse, however, you can trade your Mondelez shares hand to hand for packets of crackers and a bit of peanut butter. You would just need the certificates though a notarized bill of sale might come in handy. If you're the one receiving the shares, check with the transfer agent to make sure that you are doing the transaction correctly because you will want to ensure you receive the shares when the ledger opens back up (usually the first Monday after Judgement Day).

You might not want bonds either. Depending on the state of the legal system during and after the end of the world (let us not forget that the end of the world may be a prolonged, nine step process as outlined by Dante) companies may decide to default on their debt obligations, and bankruptcy proceedings in the afterlife could well favor equity owners if sufficient time has elapsed for you to make a claim on the assets of the company. This is a weird situation to be in, but the end of the world might have weird quirks.

An alternative to regular, registered bonds may be to look up some bearer bonds. Bearer bonds are bonds which neither the company nor any transfer agent or bank keep a record of who the owner is. Interest is paid literally to whoever holds (bears) the bond. Generally you clip off a coupon and mail it in for the interest (this is why interest payments on bonds are called coupons). You still have the risk that someone steals the bond, but at least they won't hack your account password. Bearer bonds are a little bit frowned upon these days, but they do still exist. If you find some from a company or government with excellent credit, and good chances of surviving the apocalypse, you may be able to get them at a good price in the turmoil. If people don't put a premium on tax evasion, yet haven't realized that the bonds are still money-good, you might get a good deal on them! Keep in mind you will have a small window between the realized apocalypse and the next coupon payment, which will be a reminder to the owner that they still have something of value. Act fast to get the best deals. Try eBay.

So securities are a mixed bag and you can't trust your broker to hold GLD for you as you are raptured. How are you supposed to invest in the the most fearful of investments - gold? We've already discussed the tax implications but maybe you are counting on the IRS being out of commission as well. That is fortunate for you, just watch out for the marauding charms of magpies.

Practical Tips On How To Prepare For Huge Change

Several years ago I had the opportunity to hear from a fund manager about his vision of the end of the world. It was a combination of financial and societal collapse, peppered with cute anecdotes about him darning his socks on the flight over. It was all a bit surreal, looking back. In the event of huge shifts in society, government or economy, self reliance was the most valuable thing. He was impressed that I was an avid cyclist and gardener and a little taken aback that I (at the time) had chickens in my backyard. I think this put me in an elite tier of those who were truly ready for the worst.

He did give me an interesting way of looking at crisis. His vision was one where inflation made financial transactions difficult, eroded trust and decaying infrastructure limited the use of online shopping or use of credit. Self reliance was indeed the investment to make.

Part of self reliance is frugality - if you spend most of your time, money and effort eating out and paying other people to perform tasks around your home, you are ill prepared for a time when those services aren't available. While you don't necessarily need to move to the foothills of the rockies and stock your bunker with canned goods, learning to take care of a home you own and grow and prepare your own food has value in itself. Physical skills are not only useful in a pinch, but are imminently traceable in the current economy and possibly the next economy.

A collapse of the financial and economic order does not mean that you need to have alternative methods of payment handy. Your bitcoin will do you little good if there is no electricity or internet. Instead, build your social capital and help others build theirs. Knowing people who have resources or skills you may need will be valuable. Don't just network to build your professional prospects - strengthen your useful social network. Befriend a handyman or an expert food preserver or someone who has had so enough outdoor adventures that surviving while lost in the woods is second nature. In countries where persecution of individuals based on some belief is more common, strong social connections are useful when seeking refuge from a monstrous government. Where goods and services are hard to get, tight knit communities must provide for each other.

People often put an over-emphasis on real assets, but the choicest bit of land or the shiniest gold coin will not save you if there is no rule of law. Having useful skills and a community that you contribute to will serve you well when your house, or country, burns down.

I don't know what the end of the world will look like, and I haven't bothered to calculate how likely it is to end, but preparing for it, by bettering yourself and others around you, should pay dividends in the current economy anyway.

Thursday, December 15, 2016

Managing Finances with your Partner!

Y'all my sister got married last year! This was a lot of fun.
Photo Credit to the amazing Bonnie J Heath Photography


You and your boyfriend/girlfriend/romantic partner/flame/sweet heart/babe/one and only/spouse/significant other/mate/husband/wife/better half/lover look great in pictures, but what does your financial picture look like? I’ve heard stories of people bringing up finances on a first date, or even in a Tinder profile, but that is generally monumental jerks bragging about how much they make (read: exaggerating) but that is probably a little too soon. On the flip side, I have heard of people not finding out about significant debts until after the ceremony. If you are trying to figure out an appropriate time to bring up finances, try some time in between these two examples.

In all seriousness, it is never too early to start. When you first start dating, there may be some pressure to make a date particularly nice. If your taste falls either more expensive or more frugal than your partner appears, bring it up! Tell them that you appreciate the steak and wine for dinner but you don’t mind a modest night in with takeout and the latest Netflix original (Last Chance U or The Crown, for me right now). If you’re tired of peanut butter sandwich “picnics” in the park, propose something more your style. This can get the conversation started about expectations on spending.

Your first big trip or project together will be a big expense too. Absolutely talk about how you will pay for it, and how you will approach paying for it later. If it is clear that one partner makes the bulk of the money, understand what that money pays for and what it doesn’t. Discuss how you expect large expenses to play out in the future as it unfolds.

For a more precise time to talk about things like income and retirement savings, try April 15th. I only slightly kid here. April 15th is when taxes are due, so the topic is fairly natural then. If you’ve started talking about the future, it is appropriate to start discussing how to pay for that future.

Managing money as a couple starts with looking to see where your goals and values agree and where they don’t. When you share finances, it is important that your large, long-term priorities align. This is probably reasonably important as a couple, but you’re not here for relationship coaching. When it comes to meeting large long-term financial goals, you need all the help you can get and your partner will be just as important as you in meeting them.

What are our shared goals and values?

If finances have come up in your relationship, other goals and values probably have as well. Do you love to travel? That costs money. Do you have your eye on a house in the suburbs and 2.8 children going to your alma mater? You’re going to have to pay for that somehow. Do you want to live in a van, travel the world and live a minimalist lifestyle? That is probably inexpensive, but definitely will involve financial decisions. As a couple, figure out what you value enough to spend your hard earned money on. What do you value enough of your partner’s goals to spend your money on. What do you want to spend their money on?

A saver can get along with a spender, but you need to be clear about your limits. A saver may not want to subsidize the spender too much, but as a couple you will be spending on each other to some extent. As a couple with shared goals and expenses, you will need to compromise if your habits are wildly different.

No matter how little you think you know about finance or how much you trust your partner to handle it, it is very important that each partner keep informed of the couple’s finances and also have your own money. Retirement accounts are an important part of having your own money, but also a savings or taxable investment account that is your own is important for the unknown. This is not about keeping money hidden from your partner, but about ensuring that you can stand on your own if an expense comes up.

Whoever handles more of the day-to-day financial responsibility should also be responsible for keeping their partner informed of the couple’s financial situation. Far too often I have seen recently widowed or separated partners overwhelmed with the mass of new information. I have seen people get taken advantage of or simply make sub-optimal choices because they didn’t know what all they had and could do with their finances.  Each partner should know what regular expenses you share, how much they are and how they are paid. Each partner should know what assets and debts the couple and the other partner has. While you may not have access to each other’s accounts, it is important to know what the account is for and what will happen to it if the other partner dies.

So, where exactly does this money go?

The technical aspects of how your money will flow through accounts and who will own what should arise out of how your value and goals align. There are three basic options for how you handle joint finances: either each person has their own taxable accounts and their own money and every expense is handled according to some rule or ad hoc agreement, the couple shares everything in a jointly owned account or somewhere in between. Note that retirement accounts are always in each individual’s name.

Firstly, every couple needs to understand their shared expenses and agree on a clear and fair plan for paying them.
  • The technical workings of this will depend on what makes sense to you, but one way would be to have a joint checking account that you each contribute to. Each partner contributes his or her share on a regular basis. Another method is just assigning different expenses to each other. If this is the route you take, keep in mind that expenses can change so it is fair to take a look at these on a regular basis to make sure each partner is happy with what they are paying.
  • With regular expenses it is very important that communication be open, honest and frequent. Since most expenses occur on a monthly basis, take the time to go over expenses and contributions at least that often. This is a good time to make sure that you are still on budget and talk about any financial issues that have come up.
  • There is no right or wrong way to determine a fair contribution. If one partner makes substantially all of the money, it may make sense for them to contribute most or all of the money for expenses. If incomes are roughly equal, an even split makes sense. Determine what works for you. In general, the split matters less the higher your income is above your joint expenses. For example, if your joint expenses are $2,000 per month and each partner makes $1,000 per month there are not many ways to make that split, but for the same level of expense and each partner making $10,000 per month, neither may care that much how much they have to contribute. For meaningful, but unequal incomes, a fair method may be to do a rough ratio. If one partner makes $10,000 per month and the other makes $4,500 per month, the partner with the lower income could contribute one third and the partner with the larger income could contribute two thirds of their joint expenses. It doesn’t have to be difficult or terribly precise so long as each partner is understanding and happy with the outcome.



Keep in mind, retirement accounts are only owned by a single person, so each of you should max these out to the extent that you can. These accounts will depend partly on what is available at work so you may not have a lot of control over it. In the case of drastically different incomes, it may make sense for the spouse with the higher income to contribute to shoulder more regular expenses to allow the other partner to contribute more to their retirement plan. Outside of work retirement plans, you should max out personal retirement accounts if possible. This is an important part of the money that is individually owned.

If your financial values are quite different, it will become more important for you to have your own money. It is difficult to have two people sharing an account if they view it completely differently! In this case, money that you save beyond regular expenses, shared goals and retirement accounts should be kept in individually owned accounts. This can be savings or investments. With different values, each partner can treat their money differently; one may chose to spend and the other to save.

But, but what if...?

Following a careful budget for joint expenses, couples should have an emergency fund for joint expenses. The size of this will depend on what an emergency would mean to you. Ideally, it would be able to cover insurance deductibles and the loss of at least one of your incomes for a few months. Keep this money in a jointly held account somewhat separate from your checking account.

Do you need insurance? The way I approach life insurance needs for a couple is by asking this “If one partner died, would the other partner be in significant financial distress?” The answer will be clearly yes if there is a huge income disparity and a lot of debts in the relationship. The answer may lean to no if incomes are roughly equal, expenses are manageable by one spouse and there are plenty of assets to help out in a pinch. If you do need insurance, consider cheap term life insurance and avoid expensive whole or universal life policies.

Again, it is important that each of you have your own money. While you may think this is just for separation or death, this is not the case! If you generally share expenses, but one of you needs an $800 car repair, how would you handle it? If you have your own savings and a clear plan for sharing income, this should not be a problem. If one of you spends heavily on nights out with friends, or only one of you wants to go to your alumni weekend and football game, you need to be prepared to cover that expense on your own.

How does this all come together?

There is no one perfect way to manage your personal finances and there are plenty more ways to manage finances as a couple. The important thing is that you find a method that works for you. If something isn’t working right, have an open and honest conversation about it. Just because you decide to keep some things separate does not mean you have to keep them hidden.

If your financial values are very well aligned it may make sense to simplify things with a joint account for the bulk of the rest of your money. The more aligned goals are, the more you can share actual ownership of money.

Decide on what is personal and private. Understand that it is OK for either partner to have money that they have unfettered access to. This does not mean you must keep your spending private – just that you have an account you can spend from without your partner’s permission or judgment. Honesty and transparency are often good for relationships, but again, this article is about money. It is probably easiest if personal spending is done from an account that is held in one name only.

Establish clear rules about personal and private spending. As a couple, you are a team and the decisions one partner makes do affect the other. You may want to keep tabs on each others spending so that it doesn’t get out of hand, but don’t be judgmental of specifics as long as your partner can afford it. Every relationship has boundaries, and that certainly extends to your money!

Make a plan for your long-term goals. Ideally, these will be quite similar for you. If one of you plans on buying a house and having kids it might be a little troublesome if the other partner is not on board. Financially, you will need to work this out.

Writing everything down helps. You will have some goals that are individual goals or values and some that are shared, or unique to you as a couple.  Buying a house and sending children to college are huge expenses and are things that really ought to be shared values. As shared values, they will probably be shared expenses. Both partners should know how to pay the mortgage and know what account is for college savings.

However you decide to manage money together, open communication is important. You both need to be clear about what your income and expenses are now and how you expect those to change in the future. It is also important that you understand how each other views the money they have and prioritizes spending. While you don’t have to contribute every financial goal your partner may have, it is important that you share what they are so you can support each other along the way. If you have any debts that may affect your partner, let them know and have a clear discussion about how you plan to deal with it. Lastly, financial management is an ongoing thing, have a regular date set up to review your situation and talk about major changes as they arise.


As a couple, you need to figure out your goals and values, decide on an approach to your finances, and keep each other informed along your journey.