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What would you ask if you had the chance to sit down with a financial advisor? What would be your big question?

This week on The Stewardology Podcast, we’re doing just that! We recently asked our social media followers to submit their top questions, and today, we’re tackling six of them.

We hope this is just the beginning of many “Ask the Financial Advisor” episodes, so if you’re not following us on social media yet, here’s your reminder! Follow us to stay connected and submit your questions for future episodes!

Proverbs 11:4: “Where there is no guidance, a people falls, but in an abundance of counselors there is safety.”

 

Ask the Financial Advisor (part 1)

 

How do I know if my investment strategy is actually aligned with my future goals?

Let’s start with 2 things:

What are your goals?

  • Retirement. I want to have a certain Income by the time I am 65. 
  • Buy a House. I need to have a certain amount of money for the down payment by a certain date. If you need $60k in ten years, invest it. If you need it next year, put it in cash. (see the next question below on saving versus investing).
  • Pay for College.
  • Start a business.
  • There are endless possibilities. So be as specific as possible with your goal setting. 

What are your investments? What is the strategy?

  • If your goal is long term growth, and your investment strategy is cash or bonds, it’s probably not aligned.
  • If your goal is preservation of capital, and you’re invested in the “magnificent 7”, you’re probably not aligned.

This is where the value of having a financial professional in your corner comes in. They will be able to evaluate what you are doing, in light of your goals, to make sure that you have the right plan to fit your needs.

 

Should I save or invest?

It comes down to the time frame. See the last question for more on this topic. 

In 2021, Tim’s friend saw the good stock market returns, and asked if he should put some of his house downpayment into the S&P 500. Tim told him that it’s very attractive to do that, but we’re also at all-time highs. So I don’t know that I would want to risk that money in the stock market. Then, we entered 2022, and the market dropped. I bumped into him later on, and made a comment, “I bet you feel good not putting that money in the market!” But he looked at me sorrowfully, and he probably lost about 10%. 

This is why it is important to understand your timeframe. If you have a longer time frame, it would make sense to invest your money. If you have a shorter timeframe, and you can’t handle the risk, then putting your funds in a high yield savings account may be a better option.

 

Is it better to pay off debt or to save money? Obviously both if possible. But what if I had to choose one?

Here, it depends on what kind of debt you have, and the interest rate of that debt. We encourage people with debt to look at the debt snowball. List all debts from smallest to largest, excluding your mortgage. The more you put into savings, the less you can use to pay off your debt, and the longer it will take to become debt free. If you are dealing with your mortgage, continue to save and invest.

If you follow the Ramsey Plan, you would get debt free, stop investing and pay it all on debt. After getting debt free (excluding the mortgage), invest around 20% of your income and make up for lost time. I am not opposed to the Ramsey plan. It depends on the severity of the situation. If you have a severe situation, you have to make it your absolute priority. Go crazy with putting down dollars on the debt. Turn the ship quickly. He might quibble with the “severe only” principle.  Here’s where I have openness to a nuanced approach. The best plan is not the one with the best mathematical certainty. It’s the one with the highest probability that you will actually stick to it. While I love the Ramsey plan, I also know that not everyone has “gazelle intensity”, or that both spouses are not on the same page with that intensity. So sometimes, for the sake of actually getting to the finish line, you may need to modify the plan in order to make long term progress. 

So, do I pay off the debt or save the money? If you are married, decide together what the long term priorities are. Short term sacrifice, including sacrificing retirement savings, in order to become debt free, may outweigh the benefit of staying in debt longer and only saving a small amount of money.  There are a few exceptions:

If you’ve got major known upcoming expenses (a baby is coming), you slow down on the debt snowball, you stock up some money until the storm has passed, and then you can pay down excess funds on debt. Or if you have a car that needs to be replaced, it would absolutely benefit you not to have that car debt. Save up to avoid future debt.

 

Should I get involved in cryptocurrencies like DOGEcoin, Bitcoin, etc? 

We have an episode series on this! Check out the episodes linked below. We won’t review all of that content. So make sure to check them out.

Again, the answer to this question comes down to what you want to accomplish. If your goal is to own an asset that is not subject to government manipulation, then cryptocurrencies, specifically Bitcoin, may be a good option. However, you have to recognize the risk involved (regulatory risk is somewhat reduced, as well as price volatility).

Some people discount crypto because people don’t use it to transact, and because of that they call it a gimmick or short term trend. What these people do not understand is that people are not putting their money in crypto, by and large, to transact. They put their money in crypto to protect it from inflation. Because they expect inflation, they know cryptocurrencies like Bitcoin will probably grow over time. Because the Fed can create infinite dollars, and because there is only a fixed number of Bitcoin that exists, if the demand continues as it is, the price of Bitcoin will generally continue to rise overtime. This is not an endorsement to buy and sell cryptocurrency.

 

How are you paid? What is a fiduciary?

There are two ways that Financial Advisors could be paid:

  1. The commission for the sale of a product
    • Financial advisors can make money by selling commission based mutual funds (A-shares, C-Shares). The difference between share classes typically relate to how the advisor gets paid, and what the shares cost the investor. 
    • The sale of Life Insurance products. 
      • Term Insurance (Generally small one-time commissions)
      • Whole Life Insurance (Ongoing larger commissions)
    • Most Annuity products. 
      • Commission can be as low as 1% annually. 
      • Some products offer 10%+ up front commissions. 
    • Things to be aware of when dealing with commission based sales people: If they don’t sell you something, they don’t make money (typically). So make sure that what they are offering you is actually in your best interest and not theirs. This is related to the idea of fiduciaries, more on that later. 
  2. Through a fee for a service or advice. There are two different kinds of fees. 
    • An asset based fee. Typically debited from the account and is usually anywhere between 0.8-1.2% of the account balance every year. Some discount brokerage firms (i.e. Vanguard, Fidelity) could charge much lower fees (i.e. 0.25%) with greatly reduced service offerings. 
    • A flat fee for advice or plan. This is typically paid directly by the consumer for a specific service, such as a financial plan document or college planning, retirement planning, or other types of financial planning. Fees could range anywhere from $200/hr on up.
    • Things to be aware of when working with a fee-based financial advisor: Typically they are paid based on the amount of money invested. This means that they might have a bias against advising you to take money out of your accounts because their compensation might go down.

What is a Fiduciary? And why would someone NOT be a fiduciary?

A fiduciary is someone you trust to handle your assets for you. They are required by law or ethics to always act in your best interest. They have to be loyal to you, make careful decisions, and avoid any actions where their own interests might conflict with yours. They also have to disclose any areas of conflict of interest. For example, The advisor would acknowledge that there’s a conflict of interest with the amount of money that you have invested, and a potential bias would be recommending you keeping that money into your account so they don’t lose income. But at the end of the day, most solid advisors that operate with integrity will always operate with your best interest in mind. This is how our organization, Life Financial Group, operates, though we are not legally considered a fiduciary.

Why would someone not be a fiduciary? If you are a commission only person, you do not fall under the fiduciary standard of care. You have what’s considered a “best interest” standard of care, which is a slightly lower standard. Different financial professionals are required to operate under different standards. For example, all CFP® professionals must operate under a fiduciary standard.

 

How can I start investing with very little money?

As a licensed Financial professional, I have to be careful about how I answer this question. But I can give you some general guidelines and guidance. First of all, a Free Personal Stewardship Review might be valuable if you really don’t know what you are doing (or even if you just want a second opinion). 

Secondly, you can open up an investment account at one of the big firms like Vanguard, Robinhood, or Fidelity and start your investing journey. I can’t tell you what to invest in, but I can say that one of the good innovations over the last 20 years has been target-date funds, which allow you to choose a timeframe when you need your money (i.e. retirement), and the closer you get to that year, the more conservative the account gets.

 

Stewardship Application

You don’t know what you don’t know, so start asking questions! Seek wisdom from the counsel of the Godly. 

Also consider scheduling a free Personal Stewardship Review. As a ministry to our listeners, we offer every single one of you a chance to have a free meeting with one of our Christian financial professionals. Discover the gaps keeping you from your goals, and get practical advice to help you get to where you want to be.

You can schedule your free review at StewardologyPodcast.com/Review

 

 

Next Steps

 

Material presented is property of The Stewardology Podcast, a ministry of Life Financial Group and Life Institute. You may not copy, reproduce, modify, create derivative works, or exploit any content without the expressed written permission of The Stewardology Podcast. For more information, contact us at Contact@StewardologyPodcast.com or (800) 688-5800.

The topics discussed in this podcast are for general information only and are not intended to provide specific investment advice or recommendations.Investing and investment strategies involve risk including the potential loss of principal. Past performance is not a guarantee of future results.

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