Figuring out where to start with my finances

January 4, 2013 11:13 AM

I am suddenly making a grown-up salary, with a retirement plan and everything. I need to talk to a financial professional about optimizing my taxes and retirement and building a perfect(-ish) machine that I don't need to think about too much. I don't actually know what this person is called. Am I looking for an accountant? A financial advisor? A financial planner? Or something else? Please help me overcome my laughable naïveté. Thanks!

After a number of years working random minimum-wage jobs I have an actual career, with a high-five-figures salary and a retirement plan. There are no emergencies here -- I don't have any debt, I have 5 months' salary saved, etc -- but reading those what-do-you-wish-you-had-done-at-30 AskMe posts from last year made me realize I should really get my act together around long-term financial health and planning. I got some books to do it myself ... about six months ago. My job is extremely time-intensive and I travel a lot for it, and I realized recently that I was never going to get started on this unless I had somebody else who knew what they were doing helping me think through it and put the pieces in place. What kind of professional am I looking for? (Also, if anyone has specific recommendations around the Ann Arbor / greater Detroit area, please post them here or feel free to MeMail me.)

posted by the brave tetra-pak to work & money (9 answers total)

You need a fee based financial planner.

An non-fee based one will work on commission and likely try and sell you insurance products.
posted by bensherman at 11:18 AM on January 4 [1 favorite]

Instead of a fee-based financial planner, what I would recommend is a fee-only financial planner. Fee-based planners can sometimes be paid in a combination of ways (ie fee plus commission). Fee-only planners can only be paid by fees, never by commission. Look for someone independent, not someone associated with a particular family of mutual funds or products (Charles Schwab/Ameriprise/Prudential). I don't have any specific recommendations but you might start by checking the fee-only network's page of financial planners/advisors for Michigan.
posted by matcha action at 11:57 AM on January 4 [2 favorites]

You need a fee-only financial planner.

You need one who is not in control of your accounts.

You need to take their advice with a grain of salt; it is a starting point.

You need to check their credentials.

In the end, you probably would be better off making your own budget (yes, making more money means having a budget or you'll just burn it) and starting a passive portfolio, of which there are many, and taking advantage of common sense (take advantage of corporate match but don't fall in love with the incredibly crappy, expensive funds that most 401k plans provide).
posted by rr at 12:05 PM on January 4

Fee-based and fee-only are correct, but you don't necessarily "need" a financial planner. If you invest in low cost index funds (around 0.10% from Fidelity or Vanguard) including stocks (such as total market index) and bonds and maybe REITs, you'll have a very low cost diversified portfolio. Set up automatic monthly investments so that you can put it on autopilot and not think about it again. You could also look into something called TIPS if in the future you are worried about inflation. You could also look at ETFs for stocks and bonds (such as Pimco Total Return Exchange Traded Fund) although you might not have a compelling reason to get those too.
posted by Dansaman at 1:01 PM on January 4 [1 favorite]

It really depends. Ask around among your similarly situated friends. They may "know a guy" who can really help you out.

Do not hand over your brain to whomever you work with. Do not substitute his or her judgement for your own. You want someone who will teach you about this world of investing and retirement plans.

Ask a bazillion questions. Ask until you understand completely. Don't be afraid to open your own brokerage account and to make modest investments, just to see how it works. You never know when you'll want to rollover an IRA or invest in a specific stock.
posted by Ruthless Bunny at 1:18 PM on January 4

SOMEONE is making money on every trade/purchase whether this is the planner or the bank or the financial product company. There are fees somewhere along the line with the purchase of all financial products, front-end, back-end, built-in, % of assets off the top, or whatever. Actually make that several SOMEONEs are making money. There is nothing inherently wrong with this although it is important that you are aware of how it works and that this system, some might call it capitalism, can encourage some people to make recommendations that may be more to their advantage (more commission!) than yours (stable returns over long term or whatever your goals are).

Some might argue that this is not a bad time to keep an amount of cash so you aren't up against a wall with timeframe, you may want to wait to put a chunk into the market when there is a slight decrease/correction (others would argue differently of course.) So you have time to meet with a few different people to see what they would suggest. Some will give a you free analysis of your goals and recommend an investment strategy. Along the lines of what dansaman says you can easily set up an automatic withdrawals to go to a simple diversified bank (or other) investment account, a long-term savings/emergency account, perhaps a short-term savings account for bigger budget items like vacation, new furniture, leaving only the amount of money you want to spend each month in your spending account. This is like reverse budgeting - take out what you don't want to spend and spend the rest.
posted by kimmae at 1:28 PM on January 4

Seconding the use of low cost (low ER) funds like Vanguard.

Before you contact a planner, I recommend you start here, at the Bogleheads site. This should help you (a) understand the basics, so you can understand any approach the planner explains and (b) help you understand whether you really need a planner. (My thought is you likely don't.)

If you have a 401k and there is an employer match, you should start paying into that as soon as you can to get that "free" money. And you should also look into paying into a regularly into a Roth IRA. (You are beneath the income limit which restricts the ability to pay into a Roth IRA directly.)

I would counsel that, if any planner (or well-meaning friend for that matter) recommends using any form of life insurance as an investment that you should ignore it.
posted by NailsTheCat at 1:44 PM on January 4 [1 favorite]

If you decide to go the route of a financial planner/adviser, you should shop around.

Like, if you get a bunch of recommendations, you should take up any offers the recommended people make for a free consultation, so that you can compare advice and, importantly, figure out whether you actually want to work with them -- do they make you feel comfortable? Do they explain things in a way you understand? Do they work with people in financial situations like yours, or is there advice geared towards people who make a lot more/at a different stage in life? Is the advice they give you actually helpful? If you ask them about their biases and what their compensation structure is like, are they flustered or upset or try to avoid the question? Or do they expect the question and respond honestly and clearly?

Being your financial planner/advisor is basically a job. You should interview people for it.

Sometimes, the best fit is somebody who does not have the Internet Approved Fee-Only method. Mr. Machine and I have a financial planner who is not, in fact, fee-based -- we're comfortable with the (tiny tiny tiny) amount he charges to watch over our index funds and invest-and-forget-about-it bond funds. We like him, and we trust him. We did also finally buy life insurance and disability insurance to supplement what we get through work -- yeah, he wanted us to and bugged us to do it and had a financial incentive to do so, but we also did our own research and ran the math and decided it made sense. We've got a mortgage now, we're planning to have kids, we have the cash, and we're at an age and job position where it's only going to get more and more expensive (and necessary).

And then he went out for us, pulled quotes from multiple companies for us to review, figured out, at our request, the rate difference if we got different amounts, coordinated paperwork, let us know what to expect, had his secretary (nicely) nag us to send stuff back in when we kept forgetting, and then, when Mr. Machine came back at the second-best rate for the company of our choice because he was over their weight threshold by a couple pounds, talked the insurer into giving us the best rate.

It's nice.
posted by joyceanmachine at 4:20 PM on January 4

Dimensional has a list of financial advisors. I mention this because Dimensional advocates low-cost, passive strategies based on real research. Their principals basically invented modern diversified portfolio management techniques. (My own portfolio is balanced using what's referred to as the "Fama/French three-factor model", and Dimensional employs both Fama and French.)

CFA after the name means Chartered Financial Advisor, and it's a meaningful designation. To get it they need to pass three tests, and only about 40% of those who attempt each test passes it.
posted by grudgebgon at 10:42 PM on January 4