Newfield Financial Solutions

Our Current Thoughts

4/23/2019

The Confusing Spectrum of Advisors

You are inundated with advisory options.  Given the plethora of options, how do you sort it all out, and then once that is done, how do you choose an advisor?

You can view the advisory marketplace as a spectrum.  On one end are the firms and advisors who believe, fundamentally, that risk management and insurance products are the foundation of your financial security and independence.  On the other are those that believe your investment strategy and products are the foundation.  There is a middle of the spectrum, too.  These are the folks who believe your financial plan is the foundation of your independence and/or security.  Is one of them better?  Is one of them wrong?  How can you tell what is right for you?

The insurance/risk management focus is a good one.  Without income, there is nothing to save, no future objectives, and no way to pay the bills.  This is a significant concern if you live too long and cannot pay for the cost of the care you would like to have, you become sick or injured and cannot work, or you die too soon and the survivor(s) suffer from the loss of your income.  These things do happen.  Virtually everyone we know has a story about one of these events.  That being said, can risk management products solve all of your financial needs?  We do not believe so.  We believe the risk management focus is a core tenet of your financial plan, though.

On the other end, can investment strategies and solutions solve all of your needs?  This is also a good and necessary focus.  However, if you would need to replace 25 years of income should you die too soon (or be unable to work), can you realistically save enough, or have enough saved, even with outstanding rates of return, to accomplish that?  This is, in nearly all cases, not possible in any reasonable time frame.  Investment solutions are critical to long-term goals like being able to choose when to stop working and in making significant purchases.  Investment strategies are critical to solving the financial independence problem, can manage the series of return problem over long periods, and techniques like establishing an income reserve or cash buffer for your income needs can mitigate market volatility when you no longer work.

Since neither of these ends of the spectrum can efficiently cover the set of solutions you typically need, we then arrive at the center.  We believe that you build a plan - one that looks at the entirety of your life and subsequent financial implications.  The planning process includes your family values and your behaviors.  Then, products are applied to solve your particular set of needs.  It then follows that you monitor changes in your life, and the actual performance of the various products, to determine when changes are needed.  It is the process of planning, and the subsequent initial and correcting actions taken, that are truly valuable.

So, does the platform (insurance company, investment company) rule out an advisor?  Not as long as the advisor is a comprehensive planner, acts as a fiduciary, can bring to the table products from many vendors, monitors results, can coach and motivate you to take action, and can define and take corrective action.

Next time, we will discuss how to choose an advisor.

 

_________________________________________________________________________________

 

4/3/19

Our Values

We think our value system is critical to your success. 

  • We act in your best interests, always. Our first and foremost priority is you.You will find we place considerable importance on discovering and understanding what matters to you.

  • We are professional and prepared.We use agendas and follow up.We may be casual in appearance – we are professional in action.

  • We are respectful.We understand that everyone is unique, with their own set of individual values and work style. We respect your time and priorities.

  • We are collaborative.We do not know everything.We understand that we have to work together with you and other advisors you have in order to optimize outcomes. Our belief is that collaboratively brainstorming creates better solutions.

  • We are caring.Throughout the time we work together, both pleasant and unpleasant things will happen.We care about you and how life events affect you.

  • We are honest and direct.Sometimes we have positive things to say.At other times, we make challenging points or lead discussions that may not feel great.Regardless, we will tell you what we think in the simplest possible terms.

  • We are focused on the outcome.We will never be critical of where you have been or where you are.If you want to succeed and/or reach a certain outcome and are committed to that, then so are we.

  • We are responsive.When there is something that needs to be done, we act as expeditiously as is possible.We will tell you our timeline for completion of a task or deliverable, and if there is a specific timeline you need, we will tell you if we can meet that date.

 

_________________________________________________________________________________

 

3/27/19

When You Don’t Need an Advisor

You have no need for an advisor if you:

  1. Save consistently and at a level that is sufficient for you to become financially independent at your chosen age as well as to fund your other goals (examples: college funding, family support, second home, stamp collecting, your wine cellar, or whatever those goals happen to be)

  2. Can determine the capital and saving needed to achieve your goals (examples:accounting for longevity and health, legacy/family, inflation, and expected returns)

  3. Have and follow a process for regularly examining your goals, cash flow, investment strategies, and capital allocations relative to those goals

  4. Can design a diversified investment allocation that is consistent with your liquidity needs over time

  5. Can stick to your investment allocation regardless of your fears regarding current or expected market conditions

  6. Have implemented a tested, rules-based engine (that is, it does not rely on a human decision) for implementing investment actions

  7. Understand the risks and implications of losing your income and have deployed a risk management strategy consistent with those risks

  8. Are rarely confused by the multitude of products, claims for those products, and complexity of the available product selections and options

  9. Can select the right products for your unique life and financial situation and have the means to regularly evaluate the selected products for ongoing fit and effectiveness relative to your needs

  10. Understand how Social Security and Medicare may affect your financial security

  11. Know when to employ a CPA for tax expertise

  12. Know when to engage an attorney for estate planning

 

__________________________________________________________________________________

 

3/12/19

When to Consult An Advisor

Indications that you may benefit from meeting with a financial advisor:

  1. Difficulty saving to save (that is, saving dollars permanently and not saving for a year or two and then spending those dollars) other than your employer’s sponsored retirement plan
  2. “I don’t know” is the answer to “what is your savings capacity?”
  3. Lack of time, interest, and/or understanding of how to assemble a plan that looks at all the components of your financial life, associates your capital and savings power with your goals, and provides a clear measure of your financial ability to reach your goals
  4. Missing the discipline to systematically save towards your goals
  5. Consistently borrowing to fund your lifestyle
  6. Unclear as to how much you need to save to comfortably stop working and/or fearful you will never be able to stop working due to financial concerns
  7. Concerns about how your savings and eventual retirement are affected by taxation
  8. Competing goals and indecision regarding application of your hard-earned dollars to reach your goals
  9. Worries about what would happen to your family if you were not able to earn an income due to illness, injury, or early death
  10. Unsure where your investments are and/or what they are earning
  11. Uncertain how much you are paying for investment management
  12. Need a will, associated power of attorney, and advance medical directive documents and have made no progress towards completing these documents

There are certainly others.  Note that this discussion says absolutely nothing about how much you earn, your net worth, or investable assets.  Our experience is that these issues are consistent across our population.  The only difference is how many zeroes there are in your paycheck or your investment account.

 

__________________________________________________________________________________

 

2/20/19

Behavior Matters

The rustling in the bushes, when it is negative investment performance (or an unexpected expense) and not a tiger, does not mean an imminent threat. But we respond as if it does.  Money activates our survival instinct.  What worked well when we were hunters/gatherers is not an effective strategy  for money and investing decisions. 

Much (in our opinion, most) of a true financial advisor’s value is managing the behaviors necessary for you to be financially healthy.  We are sure you are aware that the great majority of investors never achieve anything like index performance.  When investing, most investors chase performance, buying the “hot” sector, asset class, fund, or strategy.  The tendency is to pile in or out of the market at the wrong time, as they become convinced that the short-term will be the long-term and the proverbial rustling in the bushes is a tiger about to pounce.  We see similar saving patterns, in that the great majority of people do not save early enough, often enough and they do not consistently save over time.  They save when it becomes an emergency. 

These are behavioral and not knowledge issues.  For the most part, the people we meet “know” they should be behaving differently.  Barring an outside impetus (such as a behaviorally-savvy advisor or a crisis) their behavior and therefore their outcomes are not likely to change. They may survive financially but are less financially healthy than they could and should be. 

Yes, we manage money, help you reach your savings and financial independence goals, and implement effective income and catastrophe protection plans.  These only truly matter when we identify what is driving you to behave the way you do, get to the core of what you care about, connect what matters to your money, and therefore create and most importantly help you adhere to a comprehensive financial plan.  When we have done this, you will ignore or at least not change your direction the next time there is a rustling in the bushes.  If you panic (and this is common) you will call us first.

We are then, in our view, providing useful and valuable financial advice. 

 

__________________________________________________________________________________

 

2/11/19

Saving is exceptionally difficult for the great majority of people.  Our belief is that because saving itself is not a goal, people don’t do it.  People need to have a strong motivation (or motivations) to save.  Our job is to uncover and harness that power in our client’s best interests.

The great majority (the typical data we see says about 80%) are not financially secure or find themselves in dire financial straits (see the impact of the recent shutdown).  These are not income-dependent problems.  We see these issues at all income levels – and we do mean all.

There is no savings gene.  Your savings habits are mostly built unconsciously, based on your environment when you are a child.  We are not wired to save.  Ask any financial psychologist or behavioral finance expert.  This is exacerbated by our spend, spend, spend culture and various marketing programs.  Difficulty saving is not a character flaw – the cards are stacked against you.

If you were not taught to save, and your brain is working against you, how can you make sure you save consistently and effectively?  The operation is simple: pay yourself first.  Execution?  Hard, really hard.    

The smartest thing to do?  Stack the cards in your favor.  Define your goals – things you really care about.  Write them down.  Review them at least monthly.  Determine how much needs to be saved for each.  Automatically transfer that amount in an equal installment each time you get paid (1/24 if you get paid 2 times per month, or 1/26 if you get paid every two weeks) into an account designated for that goal. As an example, this is exactly how your 401k plan works, which is why it is an incredibly successful savings tool.   If you have no idea what it is going to take to fund your goals, or if you find that you just cannot get yourself to apply this discipline, those are signs that you should employ a financial advisor.

Most people, though, cannot fully fund all of their goals.  We believe that the first thing everyone should fund (after allowing for your living expenses) is a cash reserve.  Then, your own financial security.  Should you budget for a little fun?  Absolutely.  After these are covered, then you can start thinking about funding college, beach house, boat, etc.

This process also dictates knowing what your spending plan is.  It means having a spending plan that’s documented.  When you look at the cash that comes in from your business or employer compensation, then you will know how much you can save by subtracting your spending plan.  Then you allocate these dollars based on your goals and priorities.  Review this plan, and your actual spending, monthly when you review your goals.

Last: Commit to saving at least ½ of all compensation increases and bonuses.  Another approach is to increase the amount you automatically take from your compensation by 1% each year. 

This process can be dramatically altered by your starting point.  Earlier is certainly better, because you can take better advantage of the time value of money/compounding process.

If this leaves you lost, or overwhelmed, or you know you lack the discipline, these are great reasons to hire a financial advisor.  We are always interested in having these conversations.

 

__________________________________________________________________________________

 

1/22/19

Financial planners and advisors like to provide a detailed description of the tasks that we perform for our clients.  But what is it that we do?  How do clients truly benefit?  For you, the client or potential client, what is different about us?  Aren’t we all the same?

What our clients tell us is that our focus is different.  Our focus is on your well-being and your wealth.  Everything we do is structured around what you care about, both emotionally and financially.  It’s not just the money – it’s helping you do what you want, when you want, with whom you want, without worry.

The tangible results of our process are:

  1. We take the time to get you organized.You will know where all the parts are and get a clear picture of your current situation

  2. The analysis and reporting we provide will show you how what you own and what you are doing and earning are pushing you towards your life goals

  3. The recommendations we provide will tell you exactly what needs to change – and what does not – to improve your results

  4. We provide regular reports on your progress and on the performance and productivity of your financial assets and incomes so that you know where you are and where you are most likely to end up

The benefits of what we do are:

  1. Save You Time

  2. Take Action for Your Benefit

  3. Reduce Complexity so You Make Better Tradeoffs/Decisions

  4. You Feel Safe and Confident

  5. Create Clarity

  6. Offload Unpleasantness

  7. Receive Both Encouragement and Honest Feedback

  8. Be One Throat to Choke/Someone to Blame

This is by no means an exhaustive list:  It is what we hear most often from our clients.

 

__________________________________________________________________________________

 

1/10/19

What did we do these past two weeks in our client's investment portfolios? We discussed recommendations for tax loss harvesting in certain accounts.   Did we change strategy?  No.  We did the things that - given your investment time horizon and goals - are appropriate.  We make small (less than 5%) portfolio allocation adjustments on a forward-looking basis in advisory accounts, by looking at the relative strength of the asset classes we use – but never in response to volatility. Are we comfortable potentially being “wrong” in the short-term to help make it more probable that we will be “right” in the long-term?  Absolutely.  This seems simple yet is extremely difficult to execute.  Why?  Your brain is not wired to make sound investing decisions.

Discipline is a far bigger winner than attempting to respond to the tyranny of the day.  The data tells us this and the long-term performance for our clients tells us this.  Historical data shows that markets have risen over time and that down markets are temporary.  Is this time different?  We do not think so.  Could we be wrong?  Sure.  Is that probable?  No.

For your investment goals that can't tolerate volatility, or, if emotionally you can't, we either stay out of the stock/equity markets entirely or we want you to have limited exposure.  That is one of the core reasons why we talk about your time horizon and risk tolerance in relationship to your goals and apply your mindset when devising your investment strategy.

During periods of high market volatility, and there are many, we increase the volume of our communications to you.  We know that your emotions take hold.  It has been said that the pain of loss (or perceived loss) is 2.5 times as powerful as the pleasure of gain.  Keep one thing in mind - unless you take your money out of the market, you have a paper loss only. When you sell and do not reinvest (or get the reinvest timing wrong), you have then incurred a loss that is likely to permanently impair your future wealth.

We certainly love managing your wealth. Making sure your income and estate are as protected as possible is enjoyable, too.  We love seeing you reach your goals and succeed a lot more, though, and that can be achieved through your plan.  Your plan, driven by your hard work, values, vision, and goals, is where your wealth is built.  Sticking to your plan is how your wealth can grow and be sustained.  Our most valuable role is to help you plan and stick to your plan.

 

All investments carry some level of risk including the potential loss of principal invested.  No investment strategy can guarantee a profit or protect against a loss.

 

To learn more about Northwestern Mutual Investment Services, LLC and its financial representatives, visit: FINRA BrokerCheck