5 Simple Steps You Can Take To Change Your Money Mindset

5 Simple Steps You Can Take To Change Your Money Mindset

Change and control go hand in hand. Some changes fall easily into your scope of control, whereas others remain just outside it. You can’t control the weather no matter how much you wish that sunny January morning was actually sparkling snow. But there are other times when it doesn’t feel like you have control over a situation when you really do — and your personal financial health (and money mindset) is certainly one of them. People often fixate on the money aspects they can’t control, like the market or returns, instead of focusing on what they can control like savings, spending, investing, goal-setting, and more. 

When it comes to personal finance, whether or not you feel in control has everything to do with perspective. Your financial perspective is also known as your money mindset. What is a money mindset and do you have the power to change it? Let’s find out. 

What’s a Money Mindset?

Similar to a money script, a money mindset is the unique attitude, perspective,  and narrative you weave using your thoughts, actions, and beliefs toward money. Your money mindset extends beyond the bounds of your personal life and enters into your general feelings toward finances. 

Your money mindset informs the way you manage, save, spend, and invest your money. When you better understand your perspective toward your money, you begin to see where your financial habits come from. A money mindset influences your thoughts and actions, which can have both positive and negative consequences.

Someone with a healthy money mindset likely feels confident, secure, knowledgeable, and energized about their financial life. Someone with a negative money mindset might feel anxious, guarded, or uncomfortable about their financial situation. Not sure where you fall? Ask yourself some questions to help shed light on your money mindset: 

  • How does your financial situation make you feel?
  • Are you comfortable talking with your spouse, parents, friends, etc. about money matters?
  • Do you like your financial habits?
  • Are you secure in your financial future?
  • Do you often compare your financial situation to others?
  • Are you confident you can achieve your financial goals?

These questions help reveal how you view money. It illustrates how you see your debt, whether you make healthy financial choices, how confident you are in your financial future, and so much more. 

How is Your Money Mindset Formed?

Your money mindset is formed from your distinct lived experiences. Everyone has a different story and relationship with money because everyone has had different experiences with it throughout their lives. Someone who worked during high school and college might have a different perspective on saving than someone whose first job was well into their 20s. 

Along with your personal experiences, your mindset is also formed by how money impacted the people closest to you. 

  • Was money a taboo topic in your house? 
  • Were your parents or loved ones constantly stressed about money? 
  • Did your family prioritize charitable giving? 
  • Was financial literacy a core topic of conversation in your house?

All of these past experiences likely influence your attitude and approach toward money today. Someone who grew up in an environment where money was a sore spot might not like managing their finances (or might always worry about having enough money to support themselves and their family).

Your attitudes and perspectives are shaped by the people around you, and those closest to you tend to profoundly influence your thoughts and beliefs. As the saying goes, you are who you spend time with, 

Why Care About Your Money Mindset?

As noted earlier, your money mindset is directly connected to your current financial habits. It affects how you approach money, the way you view and use debt, how you think about your future, and how you view the financial habits of others. 

When you know how you approach money, you’ll be more equipped to make intentional decisions that push you in a positive direction. After reflecting on this concept, you may realize you lean on your credit cards too often for purchases you don’t need and that don’t further your goals. You may also discover your propensity for giving comes from a long line of generous role models. 

Your money mindset also reveals both your positive and negative traits regarding financial management. This concept isn’t inherently intuitive. It’s critical to spend some time thinking through these questions and being honest with yourself about your attitude toward your money.

The best thing about a money mindset? Like perspectives, they can shift. Here’s a few ways you can change your mindset to improve your financial outlook. 

5 Steps to Change Your Money Mindset for the Better.

Personal finance fluctuates and changes, which always leaves room for improvement. Remember, your money mindset is something you can control. Here are some ways you can evolve and make progress: 

1. Believe You are Destined and Deserve Success

Too often, a negative mindset leads people to give up on their financial goals. It’s important to approach your money from a place of openness, curiosity, and excitement. Believing that you can reach your goals and find success is the first step. Once you have that foundation, you’ll be able to construct habits that support those beliefs. 

This doesn’t mean your entire financial road will be paved with rainbows and sunshine, but it does mean you’ll allow yourself to find success. How can you shift this perspective? Spend some time setting new financial goals. Your goals are the foundation of your financial plan. Once you have your goals, set some key milestones to celebrate as you work toward them. 

Starting from a positive headspace will help you make choices that are aligned with those productive thoughts. 

2. Picture Your Future Self

Sometimes it’s crucial to flip this tough interview question back on yourself. Where do you see yourself in 5, 10, 20, even 30 years? Where have you grown? What have you accomplished? What do you want for your future self? Picturing your future can be a telling exercise as it can reveal if you’re on the right path to attaining it. 

Maybe starting your own business is a critical milestone in your life. You might suddenly realize you haven’t started saving for this venture or really thought about the type of business for you. Fill in those missing pieces so you can set yourself up and bring that future vision to life.

You might also try picturing your dream retirement. Where are you living? How are you spending your time? Are you fulfilled? When you can see your future self, you can find the motivation you need to get there. Maybe this year commit to maxing out your retirement accounts or increasing the contributions to your other investments. 

3. Give Freely and Generously

Your comfort level with giving back to causes, organizations, and people you care about says a lot about your money mindset. In general, those who intentionally make space for giving feel more confident, secure, and fulfilled with their money. 

Every person will have a different capacity for giving, but when you feel comfortable giving away some of your money, you’ll move from a space of scarcity to one of abundance. 

A scarcity mindset is a dangerous narrative, one that leaves you constantly chasing the idea of “enough”. Abundance, on the other hand, is about setting yourself up for financial success and structuring your money in a way that brings meaning and fulfillment. 

4. Immerse Yourself in Knowledge 

One of the best ways to combat negative habits is to learn healthier ones. Financial management isn’t simply intuitive, it’s something you need to work toward and spend time with to get right. 

  • Take some time to read books, blogs, and articles. These resources can broaden your perspective and help you improve the areas where you’re struggling. 
  • Talk with family and friends about the questions you have. They might be able to share their wisdom or perhaps just open a line of conversation. 
  • Seek out a professional. A financial advisor can help address your money mindset and give you practical tools to improve it.

Knowledge is power and making the most of the resources available to you will help you shift your perspective.  

5. Know Where You Are and Where You Want to Be

To change something, you need to understand two elements:

  • Where you are.
  • Where you want to be.

Let’s use investing as an example. When you know you veer into a scarcity mindset when the topic of investing comes up, you can use the tools and resources around you to overcome those feelings. If you want to reach your financial goals, odds are you’ll have to embrace investing. 

To embrace the role investing plays in your finances, do some research on what investing means to you. Understand your risk tolerance, set goals, and work with someone you trust. All of these elements will help you build a positive and fulfilling mindset.

Live Abundantly

Your money mindset powers your thoughts, attitudes, and perspectives toward your finances. Remember, you can control how you view, approach, and manage your money. By understanding your current money mindset, you’ll be able to create positive habits that help you accomplish your goals. 

We love talking about money around here. If you want to learn more about your money mindset, give us a call

How to Reset Your Finances in a Pandemic

How to Reset Your Finances in a Pandemic

When you look back on 2020and the pandemic, what would you like to reset?

Perhaps it’s more time with your loved ones, better work-life balance, adopting healthier eating habits, getting more sleep, or using your money wisely. There are likely many areas of your life that you want to revamp. The whirlwind of 2020 taught us many lessons – how to work, maintain relationships, and experience personal growth during a pandemic. 

The coronavirus pandemic forced everyone to change their behaviors, especially with money. Make 2021 the year you take intentional steps to improving your life and your finances. How can you accomplish that goal? Here are 5 ways you can reset your finances in a pandemic.

1. Set New Goals that Reflect Your Values.

When you survive something difficult your outlook on life – especially  goals and priorities – tends to shift. While your top priority before the pandemic might have been getting a promotion, maybe you’ve realized your job isn’t fulfilling so much as it puts food on the table. 

This year, maybe change your goal to search for a career you’re passionate about – one with visible impact that offers the joy and balance you need. Take the time to reevaluate your goals. There are some you might not have been able to reach last year and others you want to makeover. Ask yourself:

  • How have my priorities shifted during the pandemic? In what ways should my goals reflect that change?
  • What progress have I made on my current long-term goals like retirement?
  • Were there any goals I put on the backburner? Can I give them a new life in 2021?

One way to give your goals a fresh purpose is to make them SMART. Smart goals clarify the goal-setting process because they ask you to think more critically and thoughtfully about each goal you bring to the table.

Let’s break down this acronym using the example of finding a more meaningful job:

  • Specific
    • Find a job where you can make an impact.
  • Measurable
    • Engage in a meaningful job search (a.k.a no rapid applying). Thoughtfully research companies and only apply to positions aligned with your definition of impact and fulfillment.
  • Attainable
    • Ensure you have the proper education and experience. Should one area fall short, see how you can fill the gap (i.e courses, networking, etc). 
  • Relevant
    • Make sure each position you apply for is aligned with your goals and values.
  • Time-bound
    • Set a time frame for finding your new job (such as an ideal 6-month job hunt).

Now is the time to reassess what’s most important to you and to organize your life around those elements. Taking a meaningful approach to your goals will help you achieve them. 

The pandemic may have altered your priorities and that’s okay. Take the time to clearly articulate those priorities and how your financial resources can support them in the coming year. 

2. Adjust Your Finances for Life Changes.

If there’s anything the 2020 pandemic taught us, it’s that things change. You may have had a 5-year financial plan, but as the saying goes, “Life likes to get in the way.” The pandemic may have moved you into a bigger house or maybe you even started (or added to) your family.

Every new adventure brings different financial needs, so take time to adjust your finances to your real life. This advice pertains to your budget, spending, saving, investing, goal-setting, and more. Make 2021 the year of alignment, where your money is truly representative of your life.

For example, buying a new home sets off a chain reaction of other expenses like automating mortgage payments, saving for property taxes, figuring out utilities, and budgeting for new paint and furniture for the nursery.

The bottom line is your finances will need to adapt to your lifestyle. No matter how well you plan, life will always shift and you’ll need to align your finances with those changes to stay on track. 

3. Build Up Your Emergency Fund and Adapt Your Savings Plan.

Did you have to dip into your emergency fund to cover unexpected 2020 expenses? If so, don’t worry, that’s what the fund was there for. Your emergency fund helps safeguard your finances in an unexpected situation like a job loss, hospital needs, necessary travel, etc. 

Using emergency money to spot you in a pinch is an essential financial planning tool. When you dip into this fund, it’s important to build the fund back up again. Throughout this year, allocate a portion of your savings to your emergency fund. 

While most advice encourages you to save 3 to 6 months of living expenses, you might want to increase that number if you have more debt, a family, inconsistent income, or you just want an extra cushion.

  • Was your emergency fund enough to cover your expenses? 
  • Do you need to save a little extra this year? 
  • How can you intentionally add to your fund?

It’s also prudent to reevaluate your savings strategy. Given the turbulence of 2020, you might want to save more of your take-home pay. Think about both the short-term and long-term goals you’re working toward. 

  • What can you do to further those goals? 
  • Did you add any new goals to the table like saving for a child’s education or planning a well-deserved vacation? 

Your goals should be the driving force behind your savings plan. When you look at your goals and savings in tandem, you’ll be better able to build a strategy tailored for you. 

4. Take Another Look at Your Cash Flow.

Cash flow is all about balancing money coming in and money going out. In times of stress, your cash flow management might be the first thing to go. When was the last time you checked your expenses? Are you surprised to see you’re subscribed to every new streaming service? Did you ever cancel that meal service you tried for the first-week promo?

The new year is a great time to check your spending habits. Try to do the following:

  • Track your spending. Whether it’s an app, excel sheet, or pen and paper. Knowing what goes out and what comes in will help you trim your budget, freeing up more for saving and investing. 
  • Ditch the negative spending habits. Every one of us has negative spending habits we’d like to kick to the curb – retail therapy, excessive dining-out, liberal use of Amazon Prime, etc. Be honest with yourself about where you fall short and take productive steps to make healthier choices. 
  • Bring intention to your spending. Spending money well becomes a lot simpler when it’s done with intention. Ask yourself, does your purchase bring you joy? (Note we said joy, not happiness). Is your spending aligned with your goals, values, and priorities? Does your spending lead to lackluster financial results? When you reframe spending in this way, it becomes more natural to infuse spending with your values. 
  • Prioritize your savings. Part of maximizing cash flow is ensuring you have enough of your income saved and invested. You want to establish a strong emergency fund, contribute to your retirement accounts, save for other goals, and invest in the markets. 

Remember, financial planning is an ongoing process. Your spending, saving, and investing will likely fluctuate, which is why your goals and values are essential to guiding the process. When you lean on goals and values, you’ll have a clearer sense of what to do next or at least have the right questions to help you get there. 

5. Zero-In on Your Investments.

When you think about a pandemic you probably don’t think about focusing on your investment plan, but that’s exactly what you should do. Many find it difficult to continue investing during tumultuous times, but for most people the best course of action is to stick with your plan. 

When you build your investment plan with a trusted advisor, you can be confident your plan takes into account your risk tolerance and capacity, time horizon, and goals. If you’re thinking about adjusting your allocations, ask yourself:

  • Has your risk tolerance or capacity changed? 
    • If so, work with your advisor to change your allocations to better reflect your preferences. 
  • Are you near a big life transition? 
    • Perhaps you’re starting a business or just had your first child and you need access to more cash. These life moments might also mean you and your advisor should revisit your allocations to ensure they still align with current and future circumstances. 
  • Have your long-term goals changed? 
    • Still hoping to retire by 40? Do you want to open your own business? If your long-term goals haven’t changed, it’s likely best to leave your investments alone. Investing is built for the long-haul. Even though there will be ups and downs along the way, it’s key to remain as calm as possible and take change one thoughtful step at a time.

If you can afford to remain invested, it’s usually best that you do. Your investments set you up for reaching future goals and maximizing the future you. 

Take Your Finances to the Next Level

Though many would say 2020 wasn’t the most financially prosperous year, today marks a new year and new opportunities to take control of your financial life. One of the best ways to do that is to work with a financial advisor. Your advisor will be able to help you transform your financial resources to support the things that matter most to you. 

Your money has purpose and meaning when you align it with your goals and values. We’d love to help you make those critical connections with your finances this year. Set up a time to talk with us today!  

What Makes Your Financial Goals SMART?

What Makes Your Financial Goals SMART?

It’s easy to get ahead of yourself. When spotting an issue, you might jump into problem-solving mode without even thinking. Say someone is renovating an old house and decides their first step is to paint the front door. This plan doesn’t make sense and is not smart because it’s not prudent to do the finishing touches without addressing the larger structural issues first.

You can apply the same idea to your finances.

There may be many changes you want to make with your money. Maybe you want to invest more, or double down on your retirement savings, or ensure next year you get that dream vacation.

But before you buy non-refundable airline tickets or dump a hefty chunk into your portfolio, you need to see how these changes fit into your existing plan and how to accommodate them.

The starting point? Your goals. Many people struggle with goal setting, so we’re going to walk you through a technique that helps you create more intentional goals today:  SMART goals.

What Are SMART Goals?

The SMART acronym dominates the business landscape and can be applied to nearly any type of goal you set – from personal to financial and more. 

  • S (specific)
  • M (measurable)
  • A (attainable)
  • R (relevant)
  • T (time-bound)

The SMART strategy brings clarity, purpose, vision, and intention into your goal regime. Instead of simply stating a goal, SMART goals ask you to dig deeper and make a plan for achieving it. What do each of these items mean and how do they work in practice? Glad you asked. 

1. Specific

Specific goals cut through vague notions and provide tangible, concrete conclusions. The more specific the goal, the more actionable it can be. Specific goals clarify your true objective, which enhances the rest of your plan’s construction. 

For example, instead of saying you want to invest, say you want to invest at least $50 a month in your brokerage account for the rest of this year. 

2. Measurable 

Not only should you make your goals specific, you should also have a plan to gauge their success. Measurable goals help you set milestones and track your progress along the way. 

If you’re investing at least $50 a month, you will clearly be able to see if you’re following through. A solid way to ensure your savings stay on track is to automate them. That way, you’ll meet your benchmarks and can always add more as needed. 

3. Attainable

If you’re juggling a full-time job, mortgage bills, raising children, etc. it’s important to set goals you can actually accomplish. Money might be tight right now, especially during the pandemic, so you might not be able to add an extra $200 to your portfolio each month. But you might reasonably be able to do $50! 

You want to accomplish the goals you set for yourself, but you can’t do it with an unrealistic vision. Know where you are and set goals that push you but don’t impose on other aspects of your life.

4. Relevant

Your goals should have purpose. Goals without purpose lack meaning and don’t get done. If you aren’t setting goals that will expand your life, it’s time to change your process. 

Relevant goals also help you prioritize short-term, more annual goals. While it’s always wise to apply consistency to long-term goals, you don’t want to ignore short-term ones. 

Perhaps you have a goal to replenish your emergency fund. That’s incredibly relevant and can support you should something unexpected happen. You might commit to funneling $50 into a highly liquid, safe account until the number is where you need it. 

5. Time-bound

Time-bound goals provide a deadline for your goals. So if you invest $50 a month for 6 months then increase your contributions by another $50 for 6 months (and so on), the time frame helps keep you accountable and encourage progress. 

As you can see, all of these ideas play off each other. Even though each is separate, they come together to create a more well-rounded solution. 

SMART Examples

Let’s compare a traditional goal example and a SMART one. Take a retirement savings goal from an early-career professional: 

Example #1: Increase retirement savings.

Example #2: Increase 401(k) contributions to 10% and supplement savings by opening an IRA with automating contributions (about 5%) for the rest of the year. 

It’s probably easy to see why the second example is the SMART goal. It’s specific by designating which accounts to target and what salary percentage to contribute. It’s measurable by taking advantage of compound savings and automating contributions. It’s attainable because this person received a salary increase and can proportionally allocate their resources. It’s relevant to their retirement savings journey and time-bound for the year they set.  

This exercise encourages you to think critically about what you want and the work it takes to achieve it. SMART goals don’t just show you the reward, they also build the path.

Should Your Goals Come First?

While there are different schools of thought, our team believes your financial goals should come before creating the plan. 

Your goals can then chart the course for structuring your finances in a way that’s unique to you. Someone who wants to retire early, for example, will need a different savings plan than someone who wants to wait until they’re 70. 

Once you know what you’re working toward, you can take it step-by-step. So before changing your financial plan, check on your goals and ask yourself:

  • Will this change bring you closer to achieving one or more of your goals?
  • Will the action harm or hinder your progress?
  • Do you need to change your plan to best meet your needs?

Make Your Goals SMART-er

While SMART goals prioritize detail, it doesn’t mean you should ignore the big picture. Your biggest dreams, goals, and aspirations are important and can set the stage for creating more focused SMART goals. 

Want to buy a vacation house? That is an amazing  goal, but you must know the actionable steps to reach it. Do you need to allocate more money for this goal? What is your ideal timeline? Is this goal impeding other top priorities like retirement or education costs?

In addition to creating SMART goals, amplify them further by:

  • Understanding the big picture and where your goals fit in
  • Distinguish between short- and long-term goals
  • Establish clear priorities
  • Use your values as a guide
  • Revise and revisit as needed

Your goals don’t stand still. Be sure you make intentional updates that best reflect your needs, both now and in the future. 

The Bottom Line

Your goals set the foundation for the rest of your financial plan. Why not make them even better through clarity and purpose with SMART goals? By digging deeper into your goals, you’ll make changes that make sense for the future you want to create. 

Remember: a crumbling exterior with a cute front door won’t do you any good, just like applying changes to your money without a solid support plan won’t lead to success. Ready to revamp your goal setting? We would love to talk with you.

The  Money Tasks You’re Avoiding And How To Make Progress (Part 2)

The Money Tasks You’re Avoiding And How To Make Progress (Part 2)

In our last post, we kicked off our two part series of addressing the money tasks you’re avoiding and the steps you can take to make progress. Today, we’re covering four additional areas that you can make headway in your financial life. 

4. Open an IRA

How many times have you sat down at the dinner table and said to your spouse, “After we eat, let’s open an IRA.” Yeah, probably never. When you actively contribute to your workplace retirement account, invest in a separate portfolio, and funnel money into your savings account, it can be difficult to open – let alone manage – another account. 

IRAs are a great addition to your retirement savings journey. They afford more flexibility and control over your investment options, fees, and providers making it an excellent complement to an existing 401(k). 

Traditional IRAs operate similarly to your workplace plan. Contributions are pre-tax, investments grow tax-free, and distributions are taxed as ordinary income. To add more tax-efficiency into your retirement planning, it’s also good to consider investing in a Roth IRA. 

You fund a Roth IRA with after-tax dollars, the money grows tax-free, and qualified distributions remain tax-free in retirement. This tax-advantage is hugely beneficial for retirees to keep their tax bill at bay. While that might not be your top priority right now, it will pay off later on. You will probably make more money as you advance in your career, which increases your tax liability. By paying taxes in a lower tax bracket now, you end up saving money in the long run by not paying them later. 

Roth IRAs do carry income thresholds. In 2020, those making over $139,000 (if filing single) or $206,000 (if married filing jointly) aren’t eligible to make direct contributions. If you want to fund a Roth, it must be done with a conversion from your traditional 401(k) account. Conversions have important tax responsibilities, so consult your tax advisor before initiating. 

5. Establish a 529 Plan

When it comes to saving for your child’s education, the earlier the better. A 529 plan can be the impetus of your savings journey. 529 plans are tax-advantaged savings plans for education costs. While contributions are after-tax, gains grow tax-free and remain tax-free for qualified educational expenses like tuition, fees, books, and supplies. 

529 plans differ from state to state, and many allow non-residents to establish an account. Be sure to shop around for plans with reasonable fees, investment options, and contribution limits.

Many families use this vehicle to plan for college costs, but 529 plans can also be used for K-12 expenses. The SECURE Act also instituted a provision letting account holders withdraw up to $10,000 tax-free dollars for student loan repayment. 

Adding another investment account to your arsenal requires careful planning and attention. Think about the following:

  • How much can you reasonably expect to save now?
  • Do you plan on using the funds for K-12, college, or both?
  • Are you sacrificing your retirement savings to fund the 529?

Knowing how much you can save and how you intend to spend the money can help you make a reasonable plan. Remember, there is no loan for retirement. Saving for education is a wonderful gift, but it should only be done after your retirement accounts are funded. 

6. Ask for the Raise You Deserve

There are few conversations more uncomfortable than asking your boss for a raise. It may be especially difficult during COVID-19 where many businesses have made budget, staff, and other office cuts. But the work you do is incredibly valuable, and if you’re overdue for a raise, now is the time to ask for it.

A raise can help you accelerate your financial plan, giving you additional resources to pay down debt, save for retirement, and fund long-term (or short-term) savings goals. Before knocking on your boss’s door (or sending a Zoom invite), be sure you have prepared the following: 

  • Comparable salary for your position and experience at your company and its competitors. 
  • Concrete accomplishments you’ve made while in your role.
  • Positive feedback from team members, stakeholders, or supporting business units.
  • Your desired salary increase. Our tip is to start a little higher to give room for negotiation. 

It’s also wise to alert your boss to the nature of your conversation before the meeting, that way you’ll both be ready to discuss your request. Send an email saying you’d like to set up a meeting to discuss your compensation, for example.

7. Revisit Your Goals

Financial planning is too often seen as a one and done task. But financial wellness takes time, engagement, and sometimes even revisions to get right and progress forward. We encourage you to look at your financial goals today. Notice how they may have changed, especially this year, and also how they haven’t. Ask yourself:

  • What progress has been made on each of your goals? Celebrate your accomplishments – even small milestones – to help boost motivation and inspire progress. 
  • Are there any intentional changes you need to make? Perhaps extending the timeline on short-term goals to accommodate any losses and fluctuations this year?

Let your goals inspire the progress you wish to see in your financial life. Returning to your goals can be enlightening and provide the motivation you need to stay the course. 

We discussed many financial housekeeping items today. If you have any questions or need help moving forward on any of these, please reach out to our team. We love helping people prioritize and take control of their financial life.

The  Money Tasks You’re Avoiding And How To Make Progress (Part 1)

The Money Tasks You’re Avoiding And How To Make Progress (Part 1)

Financial wellness is like eating healthy – it’s hard work and no fun but you know it’s good for you. Think about it, you always feel better after a healthy meal instead of a highly-processed one. But building a balanced meal plan takes more time and effort to accomplish. The same is true for a healthy financial plan. Not every financial planning task is exciting and groundbreaking, but each step secures your goals and vision for the future.  So let’s dust off your to-do list and explore actionable resources to help you accomplish some healthy financial tasks. 

1. Increase (or Get) Life Insurance

Life insurance is one of the easiest tasks to forget, yet it’s crucial if you carry significant debt or have dependents who rely on your income. The truth is, everyone who buys life insurance hopes their loved ones never need to use it, but it’s a true safety net for your family. 

Life insurance comes in many shapes and sizes; the two broadest categories are:

  • Permanent life insurance
  • Term life insurance

Permanent policies can offer good benefits but aren’t right for everyone. Due to the comprehensive nature of these plans, premiums are nearly four times higher than term policies and often don’t offer enough benefits to justify the sky-high rates. While these policies can accumulate a cash balance and investment opportunities, you can usually see more substantial returns through regular portfolio contributions.

Term insurance lets you buy a policy for a set time, anywhere from 10 to 30 years. The coverage lasts for that specific time and stops when the term ends. Term coverage is much more affordable than permanent coverage, which makes the monthly commitment much easier to stomach. Your coverage cost usually depends on:

  • The provider (you can get a better price depending on the company you buy a policy from, so shop around and understand any fees before signing on the dotted line). 
  • The amount of coverage (a $1 million policy will be cheaper than a $2 million).
  • Your age (younger people tend to have lower premiums).
  • Your health (healthy people (i.e non-smoker, physically fit, etc.) tend to pay less).
  • Gender (men typically pay more than women) 

One of the most common questions about life insurance is how much coverage you’ll need. Your coverage level is unique to you and your situation. Here are a few things to consider:

  • Your income
  • Family size and additional income
  • Existing insurance coverage
  • Net worth
  • Current portfolio and retirement assets

Did you just start a family, buy your first or second home, or start your own business? All of these should spark review to potentially increase coverage that meets your changing needs. Keep in mind, not everyone needs life insurance. Someone with no debt or dependents doesn’t need the added monthly expense.

2. Prepare Your Estate Planning Documents

People have a laundry list of reasons to avoid estate planning. But it’s not as painful as it’s made out to be. 

In fact, in the wake of the pandemic, many are re-evaluating their documents to ensure everything’s up to date. From video conferencing with their attorney to digitally updating or drafting a new will, people have been creative in how they approach this financial chore. Not sure where to get started? Let’s look at some key estate planning documents:


A will outlines your wishes for your estate. One of the most common reasons people put off creating one is a perceived lack of assets. Do you own a car or house? Are you an entrepreneur who owns their own business? What about valuable jewelry or collectibles? Maybe even a coffee can full of cash? Once you start looking, you’ll find you have several assets to plan for. A will gives you a dedicated space to help ensure your estate gets divided according to your wishes.


In their will, parents either need to add or update guardians for their children. A guardian is someone who will care for your children should you be unable to. While a guardian cares for the children’s wellbeing, a trustee handles the finances like taxes and inheritance. 


For those planning to leave significant assets to family and loved ones, a trust is an excellent vehicle to consider. Trusts are private and secure, giving you the freedom to select one that will work best for you. For example, if you want your legacy to have a charitable-focus, you might consider a charitable remainder trust which funnels a certain amount to your chosen charity and the remainder to your beneficiary. 

Financial Power of Attorney

This gives someone the ability to handle financial matters on your behalf like settling debts, paying taxes, and more. 

Medical Directive

This gives the person of your choice the ability to make medical decisions on your behalf should you become incapacitated. It’s best to choose someone like-minded who will respect your wishes. 

All these tasks can’t be completed at the same time. Sit down and see where you’re at and make a detailed plan from there. If you’re starting from scratch, maybe start with drafting a will. If you haven’t updated your plan in years, see if your beneficiaries are still aligned or if you need to change a guardian or power of attorney. 

Estate planning is meant to bring confidence, clarity, and peace of mind to your financial plan. Taking the time to update your documents ensures your life is in order to create a seamless financial transition to children, family, or charitable organizations. 

3. Set Up or Rebalance Your 401(k)

A 401(k) is a tax-efficient way to save for retirement. Pre-tax contributions lower your taxable income and boost future savings. But to maximize the plan, you first have to set it up. Creating a new account can seem daunting (which is probably why you put it off in the first place), but it doesn’t have to be stressful.

When creating your account, you’ll have to make a few decisions:

Choosing which account to fund

Traditional, Roth, or even both depending on your plan.

Selecting your contributions

Most 401(k)s are funded by payroll deferrals, which means you select a percentage of your salary to fund the account. Struggling with how much to contribute? Start by putting in enough to qualify for a company match if you have one (normally 4-6%). A good rule is to increase your contributions with a raise, bonus, or other salary bump.

Making investment choices

While your company’s provider has some control over the pool of investments you have to choose from, you are able to decide how you want to allocate your investments.  Start by determining how much risk you want to assume (high, moderate, or low) and assess from there. 

Establishing your 401(k) is not a one and done activity. It’s important to periodically rebalance your portfolio. Rebalancing means buying and selling funds in your plan to maintain a consistent allocation and risk preference. It’s best to make rebalancing part of your annual (or even quarterly) process as it limits volatility and helps maintain your risk levels and time horizon.

Having the appropriate amount of life insurance, getting your estate documents in order and setting up your 401(k) and rebalancing every six months are just a few of the tasks you need to make progress on (and are probably avoiding). In our next post, we’ll cover four additional areas that I see people drag their feet on when it comes to taking care of their money.

What Is a Money Script (And How Does It Impact Your Finances?)

What Is a Money Script (And How Does It Impact Your Finances?)

Much of our daily behavior relies on habits. Take your morning routine. Do you jump right out of bed or do you snooze a few cycles? Are you a brush-your-teeth-before-breakfast or after- breakfast type of person? Do you tie your shoes with a single or double loop? Some of these things you might not even notice unless pointed out to you. They are learned behaviors and preferences that move you through the world, and they greatly impact your life. Researchers found this same principle applies to money.Your views, attitudes, and belief system about money shape the way you approach, discuss, and further your financial vision. The unwritten rules dictating your financial life are known as a money script.

Money scripts demonstrate your belief system about money and can illuminate both good and bad financial habits you’ve developed over the years. Knowing your money script can empower you to make actual, tactical changes to your financial life. 

What Are Money Scripts?

In 2011, financial psychologist Brad Klontz and his research team published a study in the Journal of Financial Therapy about people’s reactions to money-related statements like “It’s not polite to talk about money,” or “Things would be better if only I had more money.” 

These statements were meant to gauge people’s views and biases about money and how it operates in their lives. What Klontz and his team found was that people held four different systems of belief, which he called money scripts. He notes these beliefs are typically unconscious and likely learned during childhood and adolescence. 

Think back to the way your parents or guardians talked about money: 

  • Did they pinch pennies and maintain a frugal lifestyle?
  • Were they stressed about money?
  • How did they approach the topic of money with you, if at all?
  • Did they have disdain for people with either a lot of or very little money?

These questions help you think critically about money beliefs you’ve been internalizing for decades, and are correlated with your behavior and financial wellness. Let’s look at Klontz’s four money scripts and how they can help you understand your financial actions.

1. Money Avoidance

Does thinking about, talking about, or managing your money cause stress and anxiety? Do you envy people with more money? If so, you may fall into the money avoidance category. 

Money avoidance, Klontz found, is a fascinating paradox: someone can assume money is bad or tainted but still believe money will solve their problems. Money avoidance suggests that living without money elevates your moral status, which often leads to self-sabotage, doubt, and unhappiness with your wealth. 

Money avoidance may lead to giving away more money than you have (whether to family, friends, or charities) in an unconscious effort to decrease your worth.  Sticking to this script can also lead to not thinking about money, ignoring financial statements, and struggling to create and stick with a budget.

Actionable Resources to Fix Avoidance

Just because you fall into one of these scripts doesn’t mean the rest of your life is defined by them. Understanding your money script can help challenge you to make intentional improvements in your financial life. By employing healthy actions, you can assume a new outlook on how money affects your well being. 

Money avoiders benefit from:

  • Checking-in on your money.
    • Instead of saving your statements for another day, make today the day you look at your credit card bill. 
    • Throw away the budget not working for you and start from scratch. Use a digital platform or app to track your spending habits.
    • Set regular check-in intervals, (i.e. weekly, monthly, or quarterly) to bring added structure to your plan. 
  • Re-defining the role money plays in your life.
    • Right now you see money as a negative element. Re-think that space and list ways money can positively impact your life and others, like reaching your goals, eliminating debt, charitable giving, etc. 

2. Money Worship

Let’s start with a few money statements:

  • Money is the key to happiness.
  • Money can solve any problem.
  • There will never be enough money. 

Do any of these statements ring true for you? If so, you may fall into the category Klontz calls money worship. 

This mindset leads people to believe that money is the end-goal. In the quest for accumulating wealth as rapidly as possible, people are left with an empty void since there will never be “enough” money to meet their ever-changing wants. People may prioritize work over family and other relationships and tend to overspend to maintain their prized status. 

Money worship takes retail therapy to heart by seeking to buy new things to bring a sense of happiness, purpose, and meaning. The problem is money can’t buy happiness, and this habit ends up leaving people miserable and in debt. 

Tips to Make Money a Means, Not the End. 

Money is a tool to help achieve your goals. But when money takes center stage, goals and dreams fall to the wayside. Here’s how you can redefine where money falls on your priority list:

  • Bring your goals into focus.
    • Money is a vehicle to help reach your goals. When this gets blurry in the chase for more money, stop and think about your truest life goals. What’s at the top of the list? What do you value? How can your money bring about those values and goals? When money goes out of focus, your goals can take center stage.
  • Give with intention.
    • Building charitable contributions into your plan can structure your finances in support of personally meaningful causes and organizations that also help others. Giving shifts your gaze from chasing money to seeing it work in other’s lives. 
  • Curb impulse spending.
    • Let’s face it: shopping can be a thrill. It’s great to jump into a cozy new sweater or enjoy that new car smell, but the novelty wears off and can lead to buyer’s remorse. Before you purchase something new, take time to think about how that purchase fits with your goals. Does it further them or detract from them? Why do you want this new item? These questions get you thinking mindfully about what you purchase and why which can lead to better buying decisions.

3. Money Status

Closely linked to money worship, money status conflates net-worth and self-worth. This money script epitomizes the “Keeping Up with the Joneses” mentality. People lavishly overspend and maintain a lifestyle they can’t afford to impress those around them. This leads to lifestyle inflation which compromises their ability to save for the future.

Klontz’s research suggests a money status script can lead people to believe if they live a good life, the universe will reward them financially for their good behavior. He also found this script can lead to gambling and hiding spending habits from a spouse or family member.

Money status can be tough to deal with as society frequently pushes us to buy a house we can’t afford, upgrade our cars because we deserve it, and make random purchases under the guise of “self-care.” But this mindset doesn’t set you up for future success. 

How to Change the Definition

Money doesn’t define you. This can’t be said enough. While it might be hard to not indulge in the present, tracking your spending and saving will set you up for happiness in the future. When you manage your present money needs with foresight into your future needs, you can find that balance between saving for tomorrow and living for today. 

  • Strive for financial and emotional health.
    • In life and in money, there needs to be a balance. It’s critical to find a balance that works for you and aligns with your values and goals. 
  • Spend and save with intention.
    • When you spend with intention, you find you actually spend less. Before making a purchase, assess how it aligns with your goals and values. Is this purchase a bandaid or status symbol, or does it actually further your vision and improve your life?
    • The same idea applies to saving. When you have a goal for saving and investing money, you have more stake in its success. This brings about a more meaningful savings strategy so you can take that dream vacation, do your house remodel, send your kids to college, and retire with the lifestyle you want. 

4. Money Vigilance

This script involves people approaching their financial lives with swift practicality, logic, and thoughtfulness. Money vigilance tends to mean people view money as a byproduct of hard work, discipline, and frugality. People with this mindset aren’t waiting for a financial windfall or diligently scratching lottery tickets, instead, they approach money from a tactical perspective.

Unsurprisingly, Klontz views this script as the most financially stable and healthy one in the bunch. However, money vigilance can sometimes indicate a fear over one’s financial future, which can lead to anxiety and a lack of balance between spending and saving. This mindset can also mean people are private about finance matters and aren’t comfortable talking about their money with others. 

Tips to Save for Tomorrow and Live for Today

Money vigilant people can find it difficult to enjoy the money they have. Fears over the financial future can lead to anxiety, lack of sleep, and decreased life satisfaction. It’s key to find balance between spending and saving so you can enjoy your life now and in the future. 

Create a “fun” bucket in your savings account. This could be for anything you want — a day trip skydiving, dinner at your favorite restaurant, trying out a new hobby. Take time to enjoy the money you save. While frugality is an excellent trait, spending money on people, places, and experiences that mean something to you can lead to fulfillment and purpose. 

Rewrite Your Money Script

Remember, these money scripts aren’t set in stone and don’t have to define your future actions. Knowing how you relate to money now simply reveals previously undiscovered financial habits that can provide insight into how you view and manage money. 

No matter which category you fall into, take note of where you are and where you want to be. Ask yourself the following questions: 

  • What steps can I take to improve my relationship with money?
  • How can I balance spending and saving?
  • What are my core values and are my current financial habits supporting those values?
  • In what ways can my goals better align with my financial actions?

Our team loves helping people build a life they love. It starts by having a healthy relationship with money and using that healthy money outlook to expand your life. Ready to learn more? Set up a call today.

Why Should You Care About Financial Planning?

Why Should You Care About Financial Planning?

Money is a tool; a tool that can help you shape, design, and live the life you want. Way too often, people talk about money as the destination, when it’s really a medium to facilitate the journey. Financial planning can take your money game up a notch by bringing clarity, strategy, and intention to your financial life. It can illuminate your priorities and get you thinking about money differently. A healthy financial plan gives you the tools to take control of your finances and start living your life with passion, purpose, and freedom.

So what’s the value of a financial plan? Let’s take a look.

Provides Confidence and Clarity 

One reason money can be so hard to manage is we don’t talk about it enough. Society tells us money is a taboo, private matter. We avoid it with our parents, change the subject with our partners, skirt the details with our friends, and are embarrassed to bring it up at work. But that’s not how it’s supposed to be. 

Financial literacy doesn’t come out of thin air. It has to be discussed and fleshed out to get right. 

Financial planning can give you the tools, resources, and confidence to conduct your financial life on solid footing. This information not only illustrates where you are, it also provides intentional moves to get where you want to be. 

A financial plan looks at your assets and liabilities, short-term and long-term needs, as well as your goals to structure your finances in a way that suits you. Want to retire early? A financial plan can define your current savings plan, investment allocations, risk profile, desired lifestyle, projected expenses, and more to achieve that goal.

Financial planning shatters many allusions you might have about how money works. The right plan can help you invest, make better spending and savings plans, and develop healthy financial habits. It gives you the confidence to use your money in the best ways possible.

Prevents Costly Mistakes

Losing money is never pleasant, especially when it could have been avoided. Financial planning can help bypass mistakes and unnecessary errors in your money life. This could come in many forms:

  • Negative spending habits
  • Little to no emergency fund
  • Inadequate investment vehicles
  • Improper risk management and insurance coverage
  • Making emotional financial decisions
  • Overpaying on taxes
  • Acquiring unnecessary debt
  • Incurring penalties and fees

Let’s look at a few of these examples more in-depth.

Tax Planning. A proactive tax plan can save you thousands of dollars every year. It can help leverage your investments, make the most out of capital gains and losses, and lower your taxable income. You can accomplish this task in several ways like strategic charitable giving, maxing out your retirement accounts, tax-loss harvesting, and more. Without a tax plan, you could increase your tax bill and potentially incur needless penalties.

Financial planning brings essential tax-efficiency to your financial choices. With the right plan, your tax needs are baked into your financial choices. 

Emotional Investment Choices. A top mistake we’ve seen this year is investors making emotional decisions in the market. Volatility is one thing, but the bear market in March was tough for many people. Even those with a financial plan struggled to stick to their carefully crafted strategy. Emotional decisions, especially investment ones, can be quite costly. Pulling yourself out of the market could lead to an onslaught of tax responsibilities and derail your progress.

When you have a financial plan and an advisor you trust, you’re in a better position to weather market ups and downs. You will have an investment strategy that already accounts for your risk tolerance, capacity, time horizon, and goals. While you’ll still experience volatility, you’ll be in a better position to handle those swings.

Inadequate Emergency Fund. Your emergency fund protects against unforeseen circumstances like job loss, medical bills, unexpected travel, home malfunctions, and more. During the pandemic, many people drew from their emergency fund to cover an income dip or medical expenses. Without this cash reserve, you might have to resort to credit cards, personal loans, or family loans which could put additional strain on already difficult times.

A healthy financial plan ensures all of your bases are covered in an emergency. This means having at least 3-6 months of living expenses earmarked in a highly-liquid account, maintaining proper insurance coverage, and building the right cash-flow management.

Gives Access to Funds with Lower Fees

Let’s face it, investors hate fees. Fees can comprise a significant portion of your investment portfolio, especially for novice investors who may not know the fee structure of certain mutual funds and/or broker/dealer investment strategies. But these elements are crucial to keeping fees low, so you can enjoy more of the returns. 

A financial planner can illuminate these fees and carve a path that makes the most sense for you. Your professional can explain different management strategies and highlight the best ones for your needs. Most advisors who promote low-cost investing operate under passive investment management. 

Instead of picking and choosing individual investments with high hopes of timing the market, passive management zeroes in on underlying indexes and benchmarks like the S&P 500. This strategy tracks these indexes and builds a portfolio that mirrors its activity. Since the funds are tracking an index, costs are much lower. Why?

  • The advisor isn’t cherry-picking investments. That cuts down on time and advisor fees.
  • Most funds have a trading fee. The less buying and selling, the smaller the fees. 
  • Access to lower-cost investments like index funds and ETFs.

Helps You Negotiate Raises

Are you long overdue for a raise? Asking for a raise can be an uncomfortable subject, but it’s critical to take control of your financial wellness. Our team knows broaching a pay raise – even when your experience and skills warrant it – can be a challenge. This is especially true for women. 

A Randstad survey found 60% of women have never negotiated their salary with an employer and would rather look for employment elsewhere. But this number isn’t from lack of trying. A Marketplace-Edison Research poll found that men and women both ask for raises with similar frequency, 37% for men and 36% for women. However, only 72% of women who ask for a raise get one, compared to 82% of men. 

With women already at a disadvantage with the wage and wealth gap, it is essential to advocate for their value and worth in the workplace. Here are some tools to help you ask for the raise you deserve:

  • Do Your Research
    • What is the market salary for your position, skills, and experience? What is a comparable salary internally but also externally? Knowing what other professionals at your level are paid can provide a benchmark for your salary.
  • Communicate Your Accomplishments
    • Even though you know the value you bring to the office every day, it’s vital to accurately communicate those accomplishments to your superior. Give specific examples, point to demonstrated success, and find examples of positive impact and growth. 
  • Set Yourself, and Your Company Up for Success
    • Let your boss know you want to schedule a meeting to discuss your position and compensation. This courtesy will give you both time to prepare.
    • Know what you are willing to walk away with. 
    • Don’t sell yourself short.

A raise can have a notable impact on your finances. It can help you save for your future, like increasing retirement contributions or investing in the market. A raise can also impact short-term goals like building an emergency fund, supplementing tuition payments for your child, or funding that dream vacation. 

Affords Peace of Mind

Money can be stressful. Striking the right balance between saving, spending, and investing is a challenge, but the right advice can put you on the path to success. Managing money has many moving parts, making it critical to have someone in your corner to help structure your finances in a way that’s true to you. 

Financial planning offers peace of mind, a state easily forgotten in the whirlwind this year has been. With a financial plan you can rest easy knowing your money is working for you, and knowing you’re taking care of your present and future needs. 

We love helping people take control of their money and find financial freedom. Get in touch with us today. 

Workable Wealth Investing Series: What’s in an Investment Portfolio?

Workable Wealth Investing Series: What’s in an Investment Portfolio?

Welcome back to the third part of our investment lexicon series. In part one, we introduced the concept of financial markets and discussed their broad reach. In part two, we looked at the U.S. stock market and its many intricacies, including what it is, ways of tracking it, and strategies to approach investing in it. Today, we’ll explore the ways you can participate in the stock market, namely the creation and management of your investment portfolio. What is your portfolio? What is it made of and how can you customize it to fit your needs? Let’s get to it.

Breaking Down a Portfolio

Your investments need a place to live. A portfolio is the place where you house and manage your investments. It consists of all your securities including stocks, bonds, cash, real estate, commodities, mutual funds, exchange-traded funds (ETFs), and more. 

Your portfolio is where you customize your investments to suit your needs. It’s how you acquire, sell, and manage your assets, and is your small piece of the market. Portfolios are managed by individuals, money managers, or financial planners, and an investor can have multiple portfolios that serve distinct purposes. 

When creating a portfolio, it’s important to keep your risk tolerance, investment goals, and time horizon in mind. A portfolio for a conservative investor will look completely different from an aggressive or moderate investor and that’s good. Your portfolio really should be tailored and customized to your needs and properly adhere to your risk comfort level. 

An Overview of Securities

A security refers to something with financial value that can be bought or sold. This is a broad category that encompasses many aspects of the financial market including stocks, bonds, ETFs, and mutual funds. The goal of securities is for companies to raise money in order to keep them running. There are different categories securities fall into: equity and debt.

Equity securities give the investor ownership rights. The most common type of equity security is stock. Most equity securities don’t pay investors regularly in the form of dividends (but this isn’t always the case), and investors tend to make money on capital gains (i.e. the sale of the security at a higher price than the original purchase price). 

Debt securities don’t represent ownership, they represent money that is borrowed and will be paid back at a later date. Great examples are bonds and certificates of deposit (CDs). Debt securities often pay investors interest and are usually issued for a certain period of time at which point the investor can reclaim them.

What is Stock?

Stock is a type of investment that represents ownership of a given company. When you buy stock, you are purchasing a share (or shares) in a company that supplies the company with an influx of capital. The goal for companies is to raise money to continue operations and expand their enterprise; the goal for investors is to support companies that will grow in value and eventually make the investor money when the shares are sold. 

Public corporations allot a certain number of shares for sale on the stock market.  Investors then buy and sell shares on the market with the hope of profits. Many investors hold onto their stock hoping the price (and value) will rise, but that doesn’t always happen, of course. Sometimes companies lose money or go out of business completely which makes stocks a riskier form of investing.

There are two main types of stocks:

  • Common stocks are shares of a public company and the most prevalent form of stock investing. Dividends are possible but not guaranteed and shareholders have voting rights. Common stock carries more risk but tends to outperform its preferred counterpart.
  • Preferred stocks pay fixed dividends to investors. This fixed-income security often sits in between common stocks and bonds in terms of risk level. The downside is shareholders don’t often have voting rights which eliminates their “say” in the company.

Stocks also have other categories like company size, style, industry, and location. 

It’s key to create a strategy around your stock holdings and understand that in order to make a greater profit, it often means holding onto the stock for a longer period of time. With higher volatility, stocks are a good long-term investment as investors have time to weather market fluctuations.

What is a Bond?

A bond is a type of debt security with a structure similar to a loan. When you buy a bond, you are loaning money to a company or government who has promised to pay it back at a certain time. Bonds are considered fixed-income securities because they pay their investors interest, either variable or fixed, along the way. 

Bonds are used by corporations and the government alike to help fund their ventures and are often publicly traded. The price of bonds varies depending on many factors. These include the time it takes to mature (i.e. when the bondholder will receive the face value of the bond), and the credit quality of the bond issuer — meaning the likelihood that the bond issuer will repay the loan. 

Bonds that pay higher interests to investors often have lower credit ratings, meaning a higher chance of default and longer maturity time frames. Those types of bonds are known as high-yield bonds. The highest quality bonds have good credit ratings and are known as investment grade, and these are backed by the U.S government or extremely stable companies. 

Bonds are subject to change based on interest rates. Each bond’s sensitivity to interest rate fluctuations differ but it’s relevant to know they exist. Bonds come in a few different categories:

  • Corporate bonds, which are issued by companies
  • Municipal bonds, which are issued by cities
  • Government bonds, which are issued by the government
  • Agency bonds, which are issued by agencies

Each type carries its own set of risks, rules, and regulations. In general, bonds are a safer form of investing but they generate much lower returns compared to the stock market. For example, stock market returns tend to be about double bond returns.

What is a Mutual Fund?

A mutual fund is an opportunity for multiple investors to pool money together that goes towards a certain basket of securities. Mutual funds are operated by money managers and are designed to achieve a certain investment goal. 

These funds are a good way to invest in multiple companies at once without having to purchase individual shares of each. One share in a mutual fund represents a broader investment in the market as a whole because mutual funds have a mix of investments like stocks and bonds. The value of a mutual fund is determined by the market capitalization or total value of the fund. 

What is an Index Fund?

An index fund is a type of mutual fund designed to track larger market indices like the S&P 500. By investing in an index fund, you can gain broad market exposure while also keeping costs low. How are costs so much lower? You won’t face as many operating costs and your portfolio won’t change as much. 

This can be done through passive investment (remember that strategy from part two?). Passive investing takes market timing out of the mix and focuses on the long-term strategy of market holdings. With an index fund, the account manager builds a fund that tracks or mirrors a particular index; this takes out the guesswork and gives investors a more reliable form of investing. 

It’s hard to say for sure which method produces the highest returns. In recent years, however, passive investment strategies have been more cost-effective and produced higher returns than actively managed funds which are more costly to operate. Remember, finding the right investment plan for you can be done by assessing your goals, building a portfolio that aligns with your risk appetite, and keeping your investment timeline in mind.

Fees to Learn

Most types of investing will cost you something and you should know the different types of fees you may be responsible for. Before investing in any fund, read the prospectus. This document outlines all fees the fund will charge you, keeping you more informed. Of course, your financial advisor should also make you aware of these fees, but it’s always good to do due diligence. 

The first fee to know is an expense ratio. This represents the fee you’ll pay for the management and operation costs of the fund. Some funds have high expense ratios whereas others are much lower.

Keep in mind expense ratios are often taken out as percentages of your returns, so the lower the fee, the better your net returns. 

Sometimes funds will have unexpected fees, most notable 12-1b fees for marketing and fund promotion. This fee can’t exceed 1% but it can still add up. 

Index funds tend to have much lower expense ratios than actively managed funds, coming in around 0.02% as opposed to .75% or higher.

The Bottom Line

Understanding the different elements of your portfolio can empower your investing strategy decisions and inform the types of investments you choose to buy. Have questions? Give us a call today. We’re happy to walk you through your current portfolio, and help tailor your strategy to better achieve your goals.

Disclosure: Abacus Wealth Partners, LLC (Abacus) is an SEC registered investment adviser with its principal place of business in the State of California. Abacus may only transact business in those states in which it is notice filed, or qualifies for an exemption or exclusion from notice filing requirements. This brochure is limited to the dissemination of general information pertaining to its investment advisory services. Any subsequent, direct communication by Abacus with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides. For information pertaining to the registration status of Abacus, please contact us or refer to the Investment Adviser Public Disclosure web site (www.adviserinfo.sec.gov).

This is not an offer to sell any type of security, and there is no investment currently available through Abacus. This information is provided for educational purposes only and should not be considered investment advice or a solicitation to buy or sell this security. This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Information was based on sources we deem to be reliable, but we make no representations as to its accuracy. Past performance is no guarantee of future results. There is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security.

For additional information about Abacus, including fees and services, send for our disclosure brochure as set forth on Form ADV from us using the contact information herein. Please read the disclosure brochure carefully before you invest or send money.

Workable Wealth Investing Series: What Investment Strategies Should I Use?

Workable Wealth Investing Series: What Investment Strategies Should I Use?

Welcome back to the second part of our investment lexicon series.

By now you have a good understanding of what the market is, how the stock market works, and different methods of tracking market performance. Now it’s time to look at some key tools to keep in mind when investing in the stock market. 

Remember, each strategy has its pros and cons so the best way to maximize them is working with a financial planner who’ll help your portfolio reflect the right risk with your financial goals. Let’s jump in.


Diversification is a risk management strategy that seeks to ensure your portfolio isn’t over- or underexposed in a certain area. The goal of diversification is for your portfolio assets to balance each other out by maximizing profit and minimizing risk. This is done by ensuring the securities in your portfolio react differently to market conditions in order to maintain that balance.

You can diversify your portfolio across asset classes, within assets, and also geographically (think both domestic and foreign markets). The easiest way to view diversification is in terms of asset classes. Just think, your portfolio could be a mix of stocks, bonds, commodities, real estate, exchange-traded funds (ETFs), and more. Adding another layer, the stocks in your portfolio can be across economic sectors like pharmaceuticals, finance, and petroleum. 

Asset Allocation

Building on diversification, asset allocation is an investment strategy that builds your portfolio by weighing an adequate amount of risk for your goals. Asset allocation evaluates how your portfolio is created and the specific securities you are investing in. For example, a more aggressive portfolio might have 80% stocks and 20% bonds.

These stocks and bonds can also be diversified across industries and other markets —  so asset allocation and diversification are not mutually exclusive, rather, they work in harmony. 

Dollar-Cost Averaging

This strategy helps curb a bad financial habit: timing the market. Dollar-Cost Averaging (DCA) allows an investor to divide the total amount of investment money into smaller, periodic purchases. The goal is to avoid market timing, harness volatility, and hopefully see a better return. 

DCA is a great long-term strategy that helps investors build wealth over time. One prime example is a 401(k). You make payroll contributions to this account on a cyclical basis which distributes funds to your portfolio and increases your savings over time. But this strategy can also be used outside of retirement savings accounts like mutual funds or ETFs. 

High-Level Investment Strategies to Keep in Mind

Investment strategies are really the fun part. They allow you to customize a plan based on your unique needs and let you approach investing in a way you’re most comfortable with. Let’s review a few that are ideal for new investors. 

Active vs Passive Investing

These are two completely different approaches to money management. Each has its pros and cons, though many professionals today encourage the lower-cost passive form of investing.

Active investing is what it sounds like: it actively approaches buying, selling, and trading securities to earn maximum return. This type of investing requires a portfolio manager and often a team of analysts who alter, adjust, and move securities in real-time with the goal of a larger return. 

But this type of investment philosophy has some significant downsides. To start, the management fees alone are often overwhelming, not to mention the added fees for buying and selling assets. There are also important tax considerations with this approach which usually results in a higher tax bill. 

Passive investing, on the other hand, is a sound alternative that has been proven to match or outperform its active counterpart. Whereas active investing is attuned to short-term market fluctuations, passive investing is a long-term plan. With a passive investment approach, the actual buying and selling of securities is limited and investors rely more on long-term projections than market timing. 

Passive investing has many benefits including low cost, increased transparency, and tax efficiency. But critics say it isn’t as flexible and doesn’t offer as great of returns. Active investing gives the investor more freedom to potentially see larger returns, but it also incurs much higher fees and risk.

Growth vs Value 

Another dichotomy in the investment world is the difference between growth and value approaches to investing. While both growth and value are desirable aspects of any portfolio, many investors lean one way or another depending on their needs. 

A growth investment strategy focuses on companies that are predicted to grow faster than the rest. The hope is the company will grow through additional hires and acquisitions which will lead to added profit, but that isn’t always the case. This style of investing carries more risk and is better suited to investors with a high-risk tolerance and a long investment time horizon.  

Value investing takes a different approach. This type of investment looks for companies who fly under the radar, meaning their stock price might not actually represent the true value of the company. Value stocks tend to be safer investments and usually pay dividends to shareholders. 

Essentially, growth stocks, since they are more established and more expensive, carry greater risk. Value stocks tend to be more cost-effective and have less risk attached. The type of stock that is right for you comes down to your risk tolerance, investment goals, tax plan, and investment horizon. 

Building Your Strategy

There are many different investing strategies out there, and you need to find one that supports your unique goals. Each person’s investment needs may change, so it’s important to know the different ways you can invest. Remember, you can always alter your investment plan as your needs evolve. 

In fact, it’s important to update your plan as you move through significant life stages. This is where working with a financial planner helps. Together, you can evaluate short- and long-term goals and adjust strategies based on your current life stage. Want to learn more? Reach out! We’d love to talk to you.

Stay tuned for our next series installment, where we’ll explore the different types of investments in your portfolio!

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