Monday, July 28, 2008

When Should You Replace Your Financial Planner?

I'm Jan Dahlin Geiger, CFP®, MBA , author of "Get Your Assets in Gear! Smart Money Strategies." A Certified Financial Planner™ practitioner since 1988, I've been quoted in the Wall Street Journal, MSN Money, USA Today, Reader's Digest, and SmartMoney Magazine. I have been on the board of directors of the Financial Planning Association (Atlanta chapter) and practice as a fee based planner with a Registered Investment Advisor firm. Additionally, I was just selected by Atlanta Magazine for their "5-Star Wealth Managers" list which will be published in their October, 2008 issue.

What I have noticed over the last 20 years since I have been a CFP® is that the number one reason people fire their planner is that their phone calls and e-mails are not returned on a timely basis. The client (often correctly in my opinion) infers that if the planner is too busy to return phone calls, they must be too busy to be doing a good job of watching their portfolio. Firing a financial planner due to poor performance of the portfolio is the second reason that I see.

If someone is going to base their decision on portfolio performance, in my opinion they should consider two things. The first is how their portfolio performed in comparison to the market. If the market is down 15% or 16% and they are down 7% or 8% or 9%, they should know their financial planner is doing a good job. If you are going to be in the stock market, you will be down one year out of every four on average. No planner in the world is going to be able to keep you from losing money when the market is down. However if they do a decent asset allocation, the client should be down less than the market is down.

The second thing the client should base their decision on is how the individual holdings in the portfolio performed. For example, if there are 15 holdings in the portfolio and the market is down 15%, the individual performance of those 15 holdings might range all the way from a positive 11% to a negative 18%. If there are individual holdings that are down 25% or 50% or 90%, that should be a pretty big red flag that the financial advisor has not been monitoring the portfolio very well.

It is not unusual for there to be a 30% spread from the best position in the portfolio to the worst position in the portfolio. This is true each and every year, particularly if the planner is doing good asset allocation. In an up year there might be a stock position that is up 35% while the bonds in the clients portfolio might only be up 5%.

By the way, the numbers I used above are from an annual review I just did for a client last Friday. The market is down about 15% in the last year, she is down about 8%, and her holdings range from a positive 11% (international bonds) to a negative 18% (international stock fund).

If I can provide additional information, please don't hesitate to contact me.

Monday, July 21, 2008

Budget Saving Ideas

Here is a variety of ideas, in no particular order.

1. Clean out the closets, the basement, the garage, the attic and all the overly crowded rooms and sell some stuff on craigslist.com or some similar website. I have been astonished to make $3000 in the last few weeks as I have been selling off stuff to get ready to move.
Double benefit here: not only do you raise some money to pay off debt or improve your emergency fund, but when you realize how little you can sell stuff for, it makes you more conservative about buying new stuff in the future.

2. Take a hard look at your housing costs and consider moving to something less expensive, particularly if your housing expenses exceed 30% of your gross income. This includes the mortgage payment, insurance, taxes, utilities, upkeep, landscaping, housecleaning, and any other expense required to keep up the house. Yes, it is not a great time to sell, but this is offset by the fact that it is a great time to buy. So what you might lose on the selling end can be made up for on the buying end.

3. If selling the house is out of the question, consider renting out one of the spare bedrooms. Several clients I have suggested this to in the past were quite horrified. However, their cash flow was tight enough that they decided to give it a try. All ended up being pleasantly surprised. One rented to an airline pilot who was rarely in town. Another rented to a student from a town just 80 miles away, so he went home every weekend. When he was in the house, he was always studying and very quiet. Another rented to a businesswoman who travels internationally. She really just needed a place to keep her clothes as she was rarely in town. Another rented to a woman with a small child who traded a lot of babysitting for part of her rent.

4, Most people who get serious about it can cut their grocery store bill by 50%. There are a number of books on the market that explain the details. One of the best is "the grocery store game."

5. If it's just a short period of time, you can reduce your clothing budget to nearly nothing by buying things from goodwill and resale shops or even yard sales. It is amazing to me how new clothes have come almost an entitlement item to many people. This especially applies to shoes for many women. It is amazing to me that some women believe they have to have a pair of shoes to match each outfit.

6. For someone who buys lunch in a restaurant every day, there is a huge savings from bringing food from home. And the big side benefit of that is typically you will eat much more healthy as well. I never have time to make a bag lunch in the morning, but I grab the ingredients and take them with me to work. This has gotten to be such a habit for me, that I get aggravated with myself on the days that I forget to grab some food to take with me to work. I much prefer what I bring from home to what's available to buy close to my office.

7. If you have kids, there are a million ways to save money on entertainment. When my kids were little I was newly divorced and quite broke. Our all time favorite entertainment was to go to a cemetery about a mile away. We would take bicycles, skateboards, in-line skates, and walking shoes and all have a blast together as a family.