Independent, Fee-Only Financial Advisor

Independent, Fee-Only Financial Advisor

Friday, November 20, 2015

Financial Lessons from 2015!

Susan and I had a lot of fun coming up with financial lessons we learned from events in 2015. I was super excited to see Ashley Redmond of include them all in her article! While the news about rising wages may have the most important impact on your pocket, there were lessons to be drawn from One Direction splitting up, Lamar Odom falling into a coma and even the excitement of getting new, high resolution photos of Pluto!

Here were a few of the lessons I found in recent news:

  • There has been some pretty cool news coming from outer space this year. New Horizons has sent us our best images of the surface of Pluto and we have our best evidence yet that there is water on Mars! These are amazing accomplishments that were a very very long time in the making. These are a good reminder that it is important to stay focused on long term goals, even when there is trouble in the short term.
  • The shocking and tragic story of Lamar Odom is a harsh reminder that estate planning is not just for the elderly! Estate plans need to be made early, and updated at any major life event. While I do not know the details of his planning, things like a Will and a Medical Directive are super important for people at any level of assets or relationship status. These need to be updated whenever anything changes, such as a marriage, divorce, birth of a child or retirement.
  • We were all very shocked, of course, when Zayn Malik left One Direction. When the entire band announced they will go on hiatus in 2016, our inner tween fell into deeper despair. Like a working relationship, it is important to always evaluate our financial relationships. Sometimes it is a budget item that just has to go to make room for another, or maybe an adviser that just isn’t providing appropriate advice anymore. One of the hardest relationships to break off is one with a sentimental stock, maybe an old family gift or a company a retiree has pledged undying loyalty to. These are important to evaluate in the context of the investor’s entire portfolio and sometimes, the stock just does not fit with the investor’s goals anymore. Always evaluate your financial relationships and make sure they are still fully aligned with your own financial goals.
  • Exciting for workers everywhere, Target, Wal-Mart and several other very large employers announced that they would be raising wages. While this is a direct boost to those workers paychecks, it will also spread to, and lift the fortunes of all other low-wage workers. These wages aren’t being raised because the employers are kind and loving people, but because they are having a hard time filling positions. Raising the wages effectively puts an above minimum wage floor on what an American worker will be earning going forward. This will likely lead to inflation of basic goods in the coming year, however.
  • Tesla made big headlines when their Model S was awarded 103 of 100 in the consumer reports rating system - the highest they ever awarded. This was gold in the hands of their confident promotor and CEO, Elon Musk. On the surface, it is an amazing car, incredibly safe, incredibly fun to drive and quite good looking to boot! Digging deeper into the Consumer Reports article, I noticed one glaring flaw. The car was very new, with little operating history. The section on brand reliability was essentially ignored. Reliability is a major factor when buying a car! Fast forward to a few days ago, some reliability numbers came out and they were “worse than average”. If you had bought a Tesla already, you might not be so happy about your future with it. If you had done a bit of deeper digging at the time, you might have suspected the reliability adjustment was coming (even an article sent to me by a Tesla salesman mentioned having to get a motor replaced). This lesson of doing your research can be applied to a lot of things, but particularly to investing. Far too often I see a mutual fund with a short operating life and a great track record being pitched to me or my clients. Without digging deeper into the sources of return and the risks being taken, you can’t build a realistic outlook for the future of the fund. A long operating history is no guarantee of future success (look at Volkswagen!) but it provides a lot more data for you to understand what you are getting into.