Category Archives: Investment Advice

Financial Advising or Financial Advice – Some Thoughts on the Evolution of Financial Planning

I have been a Certified Financial Planner since 1986. Fortunately, many things have changed over the years and I can truthfully say the tools we use are vastly superior to when I first started. The first financial planning software we purchased back in 1986 cost $25,000. That software almost had the capabilities of the financial planning apps you see on most of the free websites these days! Of course like most software now, we never really purchase it – we only pay to use it. The changes come so fast that it has to be that way.  The good news is now we can update our client’s plans easily.

That expensive software in 1986 did a great job of producing a plan – normally 100 pages or so – that was obsolete by the time the client even got to see it. We made projections that showed investments in things like the stock market that went up exactly the same amount every year. Of course that never happened. The markets change continuously.

ships-wheelAt that time, we gave financial advice. Think of it this way. Let’s say you had to take a boat trip across the ocean.  You have never tried to pilot a boat across a body of water like that before, so you would probably get some advice on how to make the trip.  You consult someone that knows how to make the trip and they tell you if you are leaving from point “A” and want to go to point “B” you should take a compass heading of X number of degrees and that should take you straight there. Also, if you travel at a speed of 20 knots per hour you will arrive at point B in Y amount of time.

Anyone that has ever navigated any type of vessel will tell you that while the advice you received may have been technically correct, you have very little chance that your trip would actually happen that way. Winds can easily blow you off course. Currents can easily change your direction.  Bad weather can produce heavy seas that leave you with little control of your vessel. And that idea of traveling at a certain speed probably isn’t going to happen either.  Heavy seas will slow you down. Smooth seas and a good following wind may increase your speed. Also, you need to consider that each time you make some type of correction because you think you are off course, you might actually have made a bad decision that put you even further off course than if you had done nothing!

It’s a good thing to get advice before you start your trip, but it would probably be better to have someone you can trust with you along your journey, advising you what to do as things change.  That way you are almost certain to get from point “A” to point “B”.

The future of financial planning is financial advising. It is helping you get from where you are financially now to wherever you would like to be. Life has a way of making sure it is never a straight line. Things change. Good financial plans are built to be dynamic. They can change with your ever-changing situation and goals.

The question is not “How did I do last month or last year?” it is “How do I get from where I am now to my financial goals?”  If you don’t have a financial plan, especially if you’re nearing or in retirement, you need to get one. If you have a financial plan and you’re not on a program of having it updated regularly, you may have drifted off course.

The switch to financial advising is bringing more professionalism to financial planning. But it is even more important that everyone understands that it is really financial advising that can aid you in reaching your financial goals.

Now is a great time to think about what we don’t know about investing…

Another year has flown by and many people are making New Year’s resolutions that will fade well before January ends. Prognosticators are out in droves telling us what will happen with everything from how we will dress to when the world will end. There will be people in the financial circles telling us the economy and the stock market will go up, or the economy and the stock market will go down. And, of course it will. The truth is no one really knows the future.

When it comes to investing there seems to be quite a lot we don’t actually know so I thought it would be a good time for us to review a great article by Allan Roth titled “5 things to know you don’t know about investing.” Some writers have the gift of explaining things simply so we can all ‘get it’. Allan is certainly one of those writers! Some of you have already seen this article since it is now in my handouts for our ‘Get Acquainted’ meetings. The wonderful message in the article is not only that you and I don’t know these things, but that no one does. So if you happen to be talking to a friend, neighbor or even a person that claims to be an expert, and they start to act like they know all about those things – hang on tight to your wallet and run away quickly.

A little knowledge about what you don’t know can be a very powerful thing. I hope you enjoy the article!

Can Gold be Hazardous to Your Wealth?

If you watch any of the financial or news channels, you have certainly seen the gold and silver commercials –there’s one in every break! Their job is to scare you to death and entice you into making what could be a very poor financial decision. They come on and tell you that the world is coming to an end, and the only way to protect yourself is to buy gold or silver (depending on which one they are selling of course!)

Do you ever wonder where all the money comes from to pay for those commercials? By the time I tell you this story I will be willing to bet you can figure that out.

We can have a debate about the merits or non-merits of using precious metals in an investment portfolio. The long and short of that might come down to the simple fact that there are no good or bad investments, because just about everything you can invest in does well at times and poorly at others. But that’s not what I will be talking about today. My story deals with how you can play this game and start out with such a disadvantage you may never catch up.

A good friend and client of mine recently got a case of “gold fever.” Nothing I said could dissuade him from taking some of his hard-earned money and investing in gold. The salesman convinced him to spend his money on gold coins. The actual price tag of the coins was $33,778.  The total of the gold in those coins was approximately 15.25 ounces. He paid $2,215 per ounce.  The spot price of gold on the date was $1,391. Why did he pay over 59% more for gold than the spot market price on that day?

The answer in a nutshell is gold coins.

Normal markup for gold bullion is from 2 to 10%. If you’re around the 2 to 5% range, that wouldn’t be bad but he was at a 59%markup! What seems to get lost somewhere in the sales presentation is that when you purchase coins, you are not only buying the gold, you are paying for the numismatic value of the coins as well. Just what is numismatic value? In its simplest form it is the added value that a coin brings because of its value as a collectible or as a piece of art. So about half of that 59% was established based on how rare and how pretty the coin might be. The rest of the cost comes from the simple fact that the spread – the range between how much a dealer pays for a coin and how much it sells for – is from 17 to 33%. My friend spread on this particular order was a mere 24.94%.

So how much were those coins worth when valued approximately 2 months later? $20,630.20 — a loss of $13,148.55, or 39%!  What about the spot price of gold on the same day the coins were valued? $1,361 – down $30 from where it was when he purchased the coins – that’s about a 2% loss. The selling company provided the value for the coins when they were appraised. We have no idea what they would actually sell for in the open market. The value of gold bullion was very easy to find for the same dates on the Internet.

The moral of the story? If you decide you want to buy gold – or any precious metals – make sure you truly understand what you are buying and how much it will cost so you don’t start out so far down it would take a huge market rally just to get you back to what you paid!