Help me get over financial paralysis.
November 15, 2010 12:44 PM Subscribe
I'm married, in my mid 30s, with one dependent. My family desperately needs to get a financial plan and I've got a great recommendation for a financial advisor but I can't get myself to make the appointment.
We have ~$180,000 in cash that we would like to grow over the next few years until we are ready to buy a house (we are waiting until we know where we are going to settle). In addition we would like to make a plan with regards to retirement/college etc. I know that we need outside guidance to make this happen but I can’t get over my fear of the cost of hiring a financial planner.
I am the child of parents who grew up at the tail end of the depression and I've inherited their financial paralysis – neither of them ever made an investment that wasn’t guaranteed. Just thinking about it puts me on the brink of an anxiety attack. I’ve spent so much of the last 15 years barely making ends meet and now that we have some excess I feel like I’d be foolish to spend any of it. I am also aware of how foolish it is to have it in a Bank account making 1.8% interest. Have you gotten over a similar financial paralysis? How?
Also, on a more practical level I can’t decide whether we should pay the financial advisor by the hour or by commission. Any Advice?
We have ~$180,000 in cash that we would like to grow over the next few years until we are ready to buy a house (we are waiting until we know where we are going to settle). In addition we would like to make a plan with regards to retirement/college etc. I know that we need outside guidance to make this happen but I can’t get over my fear of the cost of hiring a financial planner.
I am the child of parents who grew up at the tail end of the depression and I've inherited their financial paralysis – neither of them ever made an investment that wasn’t guaranteed. Just thinking about it puts me on the brink of an anxiety attack. I’ve spent so much of the last 15 years barely making ends meet and now that we have some excess I feel like I’d be foolish to spend any of it. I am also aware of how foolish it is to have it in a Bank account making 1.8% interest. Have you gotten over a similar financial paralysis? How?
Also, on a more practical level I can’t decide whether we should pay the financial advisor by the hour or by commission. Any Advice?
Hopefully someone else will answer the last question, though I know my FP works for me by commission and for my parents by the hour, and there are good reasons for that in that we have different sized portfolios (ie, I have a little money, they have a bit more).
But one thing that FP has helped with is working entirely within our own risk tolerances, and make suggestions based on our abilities to change that (ie, when I was younger she suggested that I could tolerate a little more, as I didn't Need the money then). Nothing has to happen with the money right away. The FP will not force you to do anything. It's YOUR money, they'll only make suggestions. But they can help you to see how much more than money could be doing for you within your restrictions.
In order to get over the paralysis, I'd say make the appointment as a consultation, paying by the hour. Tell them that you're risk adverse and your goals and see what they might recommend for you, knowing that you wouldn't have to do anything. Give yourself a timeframe for Thinking about it. Then, after that, if it works for you, go forward with a plan. Knowing that it can be changed. But you'll be better off with a plan!
posted by ldthomps at 1:03 PM on November 15, 2010
But one thing that FP has helped with is working entirely within our own risk tolerances, and make suggestions based on our abilities to change that (ie, when I was younger she suggested that I could tolerate a little more, as I didn't Need the money then). Nothing has to happen with the money right away. The FP will not force you to do anything. It's YOUR money, they'll only make suggestions. But they can help you to see how much more than money could be doing for you within your restrictions.
In order to get over the paralysis, I'd say make the appointment as a consultation, paying by the hour. Tell them that you're risk adverse and your goals and see what they might recommend for you, knowing that you wouldn't have to do anything. Give yourself a timeframe for Thinking about it. Then, after that, if it works for you, go forward with a plan. Knowing that it can be changed. But you'll be better off with a plan!
posted by ldthomps at 1:03 PM on November 15, 2010
Do you have some idea how long the "next few years" will be?
It might help your mindset to recognize that all investments carry some risk. Even an FDIC insured bank account has the risk of losing purchasing power to inflation.
I'd also suggest heading over to the Bogleheads.org/forum's list of suggested reading:
http://www.bogleheads.org/forum/viewtopic.php?t=172
posted by justkevin at 1:07 PM on November 15, 2010 [1 favorite]
It might help your mindset to recognize that all investments carry some risk. Even an FDIC insured bank account has the risk of losing purchasing power to inflation.
I'd also suggest heading over to the Bogleheads.org/forum's list of suggested reading:
http://www.bogleheads.org/forum/viewtopic.php?t=172
posted by justkevin at 1:07 PM on November 15, 2010 [1 favorite]
I have not yet paid a financial adviser to talk about planning but I have looked into it a few times. (I have nowhere near what you have in the bank which is what has slowed me down.) All the advice on the street is to engage a "fee-only" planner. Planners and advisers who work on commission are, theoretically, motivated to increase their pay and may offer you products and services that you don't need. By paying them upfront for their advice you can get some advice and take it or leave it.
And, that's why you should call an adviser -- you don't have to do anything they say. You explain to them your goals and get an overview and then walk away and think about it. You might consider calling your bank first and seeing if they do this for free. Though they may have their own products and services to sell you, I bet you'll get a lot of good info just to mull over. Always plan to think it over before you act. Tell them you'll get back to them. No need to feel paralyzed -- they can't take your money from you.
Also, keep in mind that just because someone wants to sell you a product, doesn't mean they are scamming you. Your bank might suggest you put your money in a CD which gets 4% return and has a fee. Well, if the fee is more than made up for by the interest rate during the period of the CD then you've just made money. So has the bank but that's not really your concern.
Sounds like you might also want to look into some of the personal finance threads around here and pick up a few "for Dummies" books at the library. This would at least enable you to start a list of your own questions as it sounds like you don't have all the tools and background knowledge that you'd like.
posted by amanda at 1:08 PM on November 15, 2010
And, that's why you should call an adviser -- you don't have to do anything they say. You explain to them your goals and get an overview and then walk away and think about it. You might consider calling your bank first and seeing if they do this for free. Though they may have their own products and services to sell you, I bet you'll get a lot of good info just to mull over. Always plan to think it over before you act. Tell them you'll get back to them. No need to feel paralyzed -- they can't take your money from you.
Also, keep in mind that just because someone wants to sell you a product, doesn't mean they are scamming you. Your bank might suggest you put your money in a CD which gets 4% return and has a fee. Well, if the fee is more than made up for by the interest rate during the period of the CD then you've just made money. So has the bank but that's not really your concern.
Sounds like you might also want to look into some of the personal finance threads around here and pick up a few "for Dummies" books at the library. This would at least enable you to start a list of your own questions as it sounds like you don't have all the tools and background knowledge that you'd like.
posted by amanda at 1:08 PM on November 15, 2010
I was trained as a financial advisor right out of college (it's been a few years), but decided shortly afterwards to change careers so I'm no longer considered an expert. That said, perhaps I can provide a bit of guidance.
The first important thing to recognize is that not investing your cash is in itself a financial decision, and for some this may be the best option. But for someone with as much cash on hand as you have, you want to do what you can to stay ahead of the inflation game (I'm talking long-term here -- presently inflation is very slow). I would recommend going and talking with some financial planners and let them give you some options and outline the risks associated, often times there is no fee for this if you are not yet a client.
Another piece of advice I will offer is to avoid smaller financial planning firms and independent planners. Some people prefer these because they can be more creative and the types of financial instruments they can use are much more varied. The problem with using these types of financial planners is that they lack the oversight that exists in larger firms to prevent frivolous behavior or misleading their clients. The other major advantage to using a large firm is that should you incur a loss on your investment due to irresponsible management of your account or fraud, you have a target for a law suit that has capital to draw from.
Hope this helps.
posted by bhamrick at 1:58 PM on November 15, 2010 [1 favorite]
The first important thing to recognize is that not investing your cash is in itself a financial decision, and for some this may be the best option. But for someone with as much cash on hand as you have, you want to do what you can to stay ahead of the inflation game (I'm talking long-term here -- presently inflation is very slow). I would recommend going and talking with some financial planners and let them give you some options and outline the risks associated, often times there is no fee for this if you are not yet a client.
Another piece of advice I will offer is to avoid smaller financial planning firms and independent planners. Some people prefer these because they can be more creative and the types of financial instruments they can use are much more varied. The problem with using these types of financial planners is that they lack the oversight that exists in larger firms to prevent frivolous behavior or misleading their clients. The other major advantage to using a large firm is that should you incur a loss on your investment due to irresponsible management of your account or fraud, you have a target for a law suit that has capital to draw from.
Hope this helps.
posted by bhamrick at 1:58 PM on November 15, 2010 [1 favorite]
Definitely fee-only. It's the only way to get anything approaching impartial advice.
posted by fivesavagepalms at 1:59 PM on November 15, 2010
posted by fivesavagepalms at 1:59 PM on November 15, 2010
I recommend going to a Certified Financial Planner who charges a fee. I have found that other professionals are too biased in favor of their specialty (which is a good thing!). Tax people who give financial planning advice give too much weight to tax considerations. Brokers who give financial planning advice are usually too optimistic about the markets. Insurance agents really do believe that nearly every investment need can be met with an insurance product. They aren't trying to scam you- they believe it.
A certified financial planner is supposed to be the person balancing it all out. (The spider in the middle of the web, I've heard someone say. Make of that what you will.) He or she will be on your side of the table when you're dealing with all the rest of the professionals, which will hopefully include an estate attorney (you DO have a will and an Advance Directive, right? Right? You really need these, especially when you have dependents), a tax preparer, an investment professional, and an insurance broker, though likely not all at once.
That said, I'd be leery of anyone trying to put your home buying money into the market if you're planning on using in the next few years. 1.8% for a safe place isn't too bad, when you look at what the going CD rates are. When you put short-term-need money in the market, it's a rule of the universe that the market will go down exactly when you need to pull your money out of it. As a very general rule of thumb: the stock market is for things you won't need for a long time. The bond market... maybe sooner. The next few years' money should go into CDs and savings accounts.
posted by small_ruminant at 2:12 PM on November 15, 2010
A certified financial planner is supposed to be the person balancing it all out. (The spider in the middle of the web, I've heard someone say. Make of that what you will.) He or she will be on your side of the table when you're dealing with all the rest of the professionals, which will hopefully include an estate attorney (you DO have a will and an Advance Directive, right? Right? You really need these, especially when you have dependents), a tax preparer, an investment professional, and an insurance broker, though likely not all at once.
That said, I'd be leery of anyone trying to put your home buying money into the market if you're planning on using in the next few years. 1.8% for a safe place isn't too bad, when you look at what the going CD rates are. When you put short-term-need money in the market, it's a rule of the universe that the market will go down exactly when you need to pull your money out of it. As a very general rule of thumb: the stock market is for things you won't need for a long time. The bond market... maybe sooner. The next few years' money should go into CDs and savings accounts.
posted by small_ruminant at 2:12 PM on November 15, 2010
Looking for financial advisor who has a fiduciary relationship with his clients can offer some piece of mind. Being fiduciarily charged means they're legally bound to only act in your best interests, and there are severe repercussions if they fail that charge. Basically, the law says they need to shoot straight with you.
As far as motivation goes, finding a good financial advisor can be worth it, especially if you're the type to worry-obsess-stress over money like I do. We just got a good financial advisor this year to help us start out right with retirement/debt/savings, and the peace of mind alone has been worth every penny. Our guy is very good to explain every step and assumption. It's the difference between *thinking* you're doing OK and really knowing/understanding it.
posted by ninjakins at 2:42 PM on November 15, 2010
As far as motivation goes, finding a good financial advisor can be worth it, especially if you're the type to worry-obsess-stress over money like I do. We just got a good financial advisor this year to help us start out right with retirement/debt/savings, and the peace of mind alone has been worth every penny. Our guy is very good to explain every step and assumption. It's the difference between *thinking* you're doing OK and really knowing/understanding it.
posted by ninjakins at 2:42 PM on November 15, 2010
First, stop beating yourself up! You are doing great, and if your money is currently earning 1.8% interest in a savings account, that's not bad at all, at least in this market. I was in a very similar situation recently, having saved up money for a house down payment and then realizing we aren't ready to commit to a location. It also took me a long time to work up the nerve to find a financial planner and meet with her. I think it was just my extreme lack of knowledge about investing kept me hesitant.
When I did eventually find a planner (looked for recommendations on line -- yelp and another local forum), I chose one who charged by the hour. We brought our financial records over, including our retirement accounts, and asked her to help us come up with an overall plan with the idea we would buy a house in the next 2-5 years. We ended up using five hours of her time, between the first meeting, her research and writing up the plan, and then meeting again to go over it. Her advice echoed a lot of what small ruminant says here:
That said, I'd be leery of anyone trying to put your home buying money into the market if you're planning on using in the next few years. 1.8% for a safe place isn't too bad, when you look at what the going CD rates are. When you put short-term-need money in the market, it's a rule of the universe that the market will go down exactly when you need to pull your money out of it. As a very general rule of thumb: the stock market is for things you won't need for a long time. The bond market... maybe sooner. The next few years' money should go into CDs and savings accounts.
Don't expect your planner to suggest putting your money in the market unless you have a portion that you won't be needing in the next 5-10 years. He or she will probably recommend a combination of high-interest (not that you can find very high these days) accounts and CDs. Ours did rebalance my retirement account (which was helpful since I had no idea what I was doing when I allocated it). Overall I was really happy I did it; I feel better about our finances, and the educational aspect was awesome. When we do decide to buy, we will likely go back to her to look over our financial situation again and advise us in the process.
posted by JenMarie at 3:20 PM on November 15, 2010
When I did eventually find a planner (looked for recommendations on line -- yelp and another local forum), I chose one who charged by the hour. We brought our financial records over, including our retirement accounts, and asked her to help us come up with an overall plan with the idea we would buy a house in the next 2-5 years. We ended up using five hours of her time, between the first meeting, her research and writing up the plan, and then meeting again to go over it. Her advice echoed a lot of what small ruminant says here:
That said, I'd be leery of anyone trying to put your home buying money into the market if you're planning on using in the next few years. 1.8% for a safe place isn't too bad, when you look at what the going CD rates are. When you put short-term-need money in the market, it's a rule of the universe that the market will go down exactly when you need to pull your money out of it. As a very general rule of thumb: the stock market is for things you won't need for a long time. The bond market... maybe sooner. The next few years' money should go into CDs and savings accounts.
Don't expect your planner to suggest putting your money in the market unless you have a portion that you won't be needing in the next 5-10 years. He or she will probably recommend a combination of high-interest (not that you can find very high these days) accounts and CDs. Ours did rebalance my retirement account (which was helpful since I had no idea what I was doing when I allocated it). Overall I was really happy I did it; I feel better about our finances, and the educational aspect was awesome. When we do decide to buy, we will likely go back to her to look over our financial situation again and advise us in the process.
posted by JenMarie at 3:20 PM on November 15, 2010
Think through some things that you're willing to pay for — maybe you'd never imagine painting your house yourself, so you'd hire a house painter. Certainly you've paid a dentist to clean your teeth, or anybody else who provides a service you can't do yourself.
That's what you're doing here. Regardless of what investments you make, you'll be investing some money in order to get to security. Part of that investment is paying a professional to help you do it. (And yep, a fixed-fee payment is a great way to engage them.)
The key thing here is that a lot of your stress probably comes from "I'm paying somebody to do something I should know how to do myself!" But you couldn't possibly know how to do this — you're too busy earning (what seems to be) a very good living. You do the thing you're good at, and you pay a professional to help you with the thing they're good at.
Also, no matter how nervous you are, your financial planner's met someone even more apprehensive. You're perfectly normal in your concerns, and shouldn't be shy about sharing them with whatever financial planner you choose.
posted by anildash at 8:27 AM on November 16, 2010
That's what you're doing here. Regardless of what investments you make, you'll be investing some money in order to get to security. Part of that investment is paying a professional to help you do it. (And yep, a fixed-fee payment is a great way to engage them.)
The key thing here is that a lot of your stress probably comes from "I'm paying somebody to do something I should know how to do myself!" But you couldn't possibly know how to do this — you're too busy earning (what seems to be) a very good living. You do the thing you're good at, and you pay a professional to help you with the thing they're good at.
Also, no matter how nervous you are, your financial planner's met someone even more apprehensive. You're perfectly normal in your concerns, and shouldn't be shy about sharing them with whatever financial planner you choose.
posted by anildash at 8:27 AM on November 16, 2010
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posted by phrontist at 1:01 PM on November 15, 2010 [2 favorites]