How Do We Keep Our Schools Safe?

This week’s post will not contain any advice on financial planning or investments or how much to save to achieve financial freedom. Today, I take a break from that to discuss what may be the most important issue in America today: keeping our children safe while in school. I was recently appointed to the District Safety Advisory Council organized by Fayette County Superintendent Manny Caulk. This Council is charged with “developing specific and actionable recommendations” on ways to make our schools safer. We had our first meeting on March 1 and will submit our recommendations no later than the first week of April, so this is designed to be a crisp process.

Now, I am a product of 1970’s-era schools where my biggest fears at school were being ambushed with snowballs by Jimmy Horne and Mark Velicer, the terrifying prospect that Heidi Moisenko might actually speak to me, or that Mike Zack’s mom might put cow tongue in his lunch again. Fast forward to today, and you don’t need me to describe our fears as parents of children in school.

Dr. Caulk recently summarized the urgency of this issue in an email to Fayette County Public Schools families with the following:

Our community is hurting. And since our schools are a reflection of the community we serve, our schools are hurting too. In the span of six hours last month, three teenagers died of gunshot wounds in Lexington. And in the span of nine days this month, students from three of our high schools – Frederick Douglass, Henry Clay and Paul Laurence Dunbar – have been arrested for serious crimes involving guns and the safety of our campuses.

This is unacceptable and, as a parent and father, I share your frustration.

There is nothing more important to me than ensuring the safety of our students, staff and campuses. As your superintendent, I take seriously our responsibility to care for your children while they are in our schools and send them safely home at the end of the day. I fully understand the sacred trust you place in us when you send your children to school. Students cannot be successful when they don’t feel safe. And I will not tolerate anything that interferes with our children’s ability to learn at high levels and fulfill their unlimited potential.

The Council heard or is scheduled to hear the following presentations for our background and to stimulate discussion:

o March 1 — State and national best practices, at Paul Laurence Dunbar
o March 8 — Juvenile justice and crime, at Tates Creek
o March 15 — Mental health, at Bryan Station
o March 20 — Social media, at Lafayette
o March 22 — Discussion of recommendations, at Frederick Douglass
o March 29 — Discussion of recommendations, at Henry Clay

I will be the very first to admit that I don’t have all the answers. In fact, I’m quite certain I don’t even know all the questions. There are students dealing with issues in this community that, quite candidly, are unfathomable to me. Our schools have to help students that don’t get enough food, don’t speak English well, have little to no supervision at home, who don’t stay in the same place more than a few days at a time, are influenced by gangs and on and on. And, now, of course, we need our schools to take an even more active role in policing our schools for guns and for protecting those students who feel the need to have a weapon as well as those students who could be innocently harmed by those weapons. And then, and only then, can our schools begin to teach our kids.

This Council needs your input, ideas and suggestions. While there are several ways to make it more difficult for weapons to make it into our schools, there are tradeoffs with every single one of them. Understanding what kind of environment the people of this community want for their kids is vital as we prioritize options.

Please give us your ideas by emailing no later than March 20. Suggestions are being compiled there to ensure the Council has an opportunity to review all of them. You can also learn more about the Council here:

Thank you.

How Am I Doing Financially?

I get asked all the time by both clients and prospective clients – how am I doing? Personally, I like Chris Rock’s line on relative wealth: “If Bill Gates woke up with Oprah’s money, he’d jump out the window.” Perspective is an amazing thing.

It’s tempting to benchmark yourself against what “experts” say we should have at each age milestone. For instance, a commonly quoted rule of thumb is “At age 30, you should have 1 times your annual salary saved for your retirement.” The flaw with this is obvious: all of our circumstances are different. Maybe you have saved 1 times your salary by age 30 but your current circumstances don’t allow you to save more right now. Maybe you are a good saver but you are invested incorrectly and your money won’t grow at the rate you need it to.

That’s why we always encourage personal benchmarking. Compare your current situation with where you want to be – now and in the future. So, I usually answer the question, how am I doing, with a quick checklist of items to consider:

Your net worth: Just like establishing a weight loss goal, the first step is determining what you weigh now. In financial terms, your weight is your net worth, calculated as your total assets minus your liabilities (debt). Debt can be a real drag on people’s ability to save for their financial freedom, particularly young people with student loan debt. By using the one-size-fits-all rule of thumb above, you may have 1 times your current salary as an asset but, if your debt outweighs that, you may not be making the progress you should toward your financial goals.

Current cash flow: Examining your monthly and annual expenses can be an arduous, and eye-opening, task but it is a vital step toward evaluating your current situation. First, are you living within your means – spending less than you earn?

What are your financial goals? Would you like to retire at 65, 67? Or, do you dream of changing careers at age 50? Have you saved for your kids’ educations? After determining where you are currently – your current financial weight, if you will – the next step is to determine where you are going. A good financial plan will help you determine how much investment assets you will need to generate enough income to support you after you stop working and throughout your lifetime, specific to your goals.

What is the amount of your savings? While one’s net worth is instructive to your overall financial health, the current amount of your savings, and how it is invested, is an important measurement toward your end goal. But, only relative to your own personal goal, not your neighbor’s.

How much are you saving now? How much investment assets – savings – you require to meet your goals will determine how much you need to save each year to get there. Parkinson’s Law says that “work expands to fill the time allotted for completion.” (Anyone who has ever watched the Kentucky General Assembly at work understands this to the core) The financial version of this law says that “expenses will fill the amount of income available.” Let’s face it, if we have it to spend, we will. That’s why we always encourage clients to Pay Yourself First. Put the amount you need to save to meet your goals in your workplace retirement accounts or some other investment vehicle, and live on what’s remaining. You won’t miss what you never saw.

So, want a real answer to the question “how am I doing?” Rather than compare yourself to an arbitrary benchmark, compare yourself now to where you want to be.


55 And Behind On Retirement Saving?

It isn’t at all unusual for someone in their 50’s or even early 60’s to ask us for advice as they approach retirement with too little savings. As you might guess, there are as many reasons for being behind as there are people: a late start saving, frequent job changes, personal student loan debt, college expenses for their children, or just plain bad luck. Our first advice? Forgive yourself, your predicament is not about the past, it’s about the future. Let’s consider Joey’s story:

Joey is 55 years old and makes $80,000 per year. Joey spends almost all his money on clothes and sandwiches but decides he should probably get ready for retirement in 10 years. He has saved $150,000 in a retirement account and decides to save 10% of his salary, $8,000 per year, over the next ten years. Projecting average annual returns of 7% from a diversified portfolio, when Joey turns 65 he will have accumulated wealth of about $405,000. Using a reasonable withdrawal rate of 5% per year, Joey will have $20,000 per year for his expenses. Let’s add in Social Security: Joey will be eligible at age 67 and will draw $2,360 per month, approximately, at that age – $28,320 per year.

Uh, oh, at age 65 can Joey live on that $20,000 rather than $57,600 per year in take-home income he is used to($80,000 – $8,000 in retirement contributions – 20% for taxes = $57,600)? He will have to do that for 2 years until he can take that $28,320 per year in Social Security.

At age 67, his income will be approximately $48,320 ($20,000 from his retirement plus Social Security) – still well below (16% below) that $57,600 per year he needs.

So, how much will Joey need in retirement savings at age 65? He will need a total of about $585,000 plus Social Security to maintain his current lifestyle of $57,600 per year. That’s $180,000 more than he is projected to have in 10 years.

Joey has four broad options:

1. Save the same amount but earn 11.55% annually on his investments – an unrealistic expectation.

2. Save $21,000 per year instead of $8,000.

3. Work and save for a little over 14 years, rather than 10. Joey will be 69 at that time, so not completely out of line.

4. Combine strategies of saving more each year and working a little longer too by reducing his current living expenses. For instance, can Joey downsize his home and invest the savings toward his retirement?

The power of compounding is real and is a great reason to start saving and investing at as young an age as possible to be able to achieve your financial independence as soon as possible. But, as Joey shows us, life doesn’t always go according to plan. So, if you find yourself in Joey’s situation, estimate how much you will need to have saved when you retire and develop a plan to get there…and start today!

Don’t Feel Guilty About Your Debt, Take Control

I have a fond memory of my maternal Grandfather sitting me down soon before I graduated from college and telling me, “Steve, whatever you do, don’t borrow money.” While Grandpa John lived far from an easy life as a dairy farmer in Nebraska, he and his mother did inherit the farm when his father died so he didn’t have to incur debt to get started. Circumstances are just different now. Buying a home or even a car is almost impossible without a mortgage or car loan. According to AARP, larger mortgages, higher student loans and a greater overall comfort with debt than displayed by earlier generations has increased the average debt for households approaching retirement by nearly 160% from 1989 to 2010.

Consider Fred and Ethel, both age 45. While they both have good jobs, they have just paid off their student loans and, as a result, are worried they’re a little behind getting started saving for their financial freedom. In addition, when their two children were born they purchased a home and minivan whose payments are stretching their budget. Plus, because their monthly cash flow can be tight, they occasionally build up some expensive credit card debt that takes a few months to pay off. Now, their situation is quite common and really isn’t their fault. Given a choice of incurring student loans or not going to college, they clearly chose the right path for them. So, if Fred and Ethel asked us for advice here is what we would say:

1. Don’t feel guilty, your predicament is not about the past, it’s about the future. Now is the time to plan in order to get where you want.

2. Create a budget that attempts to limit household debt to no more than 36% of gross income – mortgage, car loans, credit card debt. This might not be possible right away but, when the minivan is paid off, keep driving it for a few more years rather than buying a new one.

3. Create an emergency fund by including a regular payment within your budget until you have accumulated the equivalent of about three months of expenses. This will help you avoid incurring ridiculously expensive credit card debt when unexpected expenses pop up.

4. Pay yourself first by making regular contributions, pre-tax if possible, to retirement accounts. Whether it be a workplace retirement plan like a 403(b) or 401(k) or an Individual Retirement Account, include a monthly contribution in your budget. Make the contribution automatic, preferably taken from your paycheck, as you won’t miss what you don’t see in the first place. So, pay for items you want but don’t necessarily need with dollars leftover at the end of the month, rather than leaving retirement contributions for leftover dollars.

5. Not all debt is bad – read here to learn the difference between good and bad debt:  Continue reading “Don’t Feel Guilty About Your Debt, Take Control”

I Spoke to a UK Investing Class: Thoughts From the Students

Eric Monday, UK’s Executive VP for Finance, is one of the brightest people I have ever known but he had a brief lapse in judgment when he recently asked me to speak to his class titled, “Personal Investing and Financial Planning.” This is a class for non-Business majors who are interested in learning about financial planning, decision making and investing activities. They discuss and learn about stocks and bonds, 401(k)’s, IRA’s, insurance and many topics most of the population never learns or even considers. Dr. Monday asked me to speak to the class about my career path, particularly my experience as a client of a financial planner, then becoming one. The students were bright and engaged and here are a few of the topics we discussed and the students’ thoughts:

How to buy a car:

Their curriculum covers the basics and I described how, 25 years ago, the buyer didn’t know the cost the dealer paid for the car so could only negotiate from the sticker price downward. Now, not only can the buyer learn the invoice price of the dealer but also what other people in your area paid for the same car recently. We also discussed the merits and pitfalls of leasing a car such as penalties for excess mileage, the advantages/disadvantages of changing cars every three years or so and the difficulty in negotiating a lease because most dealers start with the monthly lease price, rather than the cost of the car. Question (paraphrased): Will we really be purchasing cars in 10 years or will everyone just use a self-driving vehicle through a ride-sharing app? Uh, wow, hadn’t thought of that – next question!

What should we expect average annual investment returns to be?

I was pleasantly surprised that the initial response from the class was 7-10% annually. While many people, particularly young people, often believe the market will generate returns much higher than that, this range is actually quite reasonable and accurate. Good job.

What do you think when you hear the title, financial planner?

There were a variety of responses to this question but the answer I was expecting finally emerged – someone who sells products for a commission. Well, here was the softball I was itching to launch out of the park. While the financial services business has some bad actors – recent media stories even describe TIAA of pushing inappropriate products on their customers – what a person should search for is fee-only financial planner who acts as a fiduciary. Simply put, fee-only means the planner’s only compensation comes from you, the client. The planner receives no backdoor commissions from another entity to sell you products. A fiduciary, by law, dispenses advice solely in the client’s best interest. Period.

I only have about $1,000 to start investing, should I invest in riskier assets like penny stocks?

This was a great opportunity for us to discuss the concept of investing and what it really is. First, penny stocks are worth pennies for a reason – the companies aren’t worth more than that. Remember, when an investor buys a share of stock, she is buying a piece of that company. So, do you think that company will earn money over the next few years? Remember, investing isn’t the same thing as making a bet at Keeneland. We’re not gambling, we’re purchasing something we believe has value and will return that value to us. So, my advice? Invest that $1,000 into a low-cost, small-cap mutual fund, regularly add to it – and look forward to the returns in 10 years or more.

What is your reaction to the wild swings of the stock market over the last 10 days?

Crickets…..A good response for all of us.

Four Things To Do During A Stock Market Downturn

You have undoubtedly read and heard about the whiplash-producing stock market this week because the so-called experts at every newspaper and news channel have been talking about it incessantly. It reminds me of the breathless excitement of meteorologists prior to an anticipated snowstorm. In fact, these “experts” are about as accurate as the weather forecasters too. Part of the reason these trading days have been such a shock to many is that the markets have been so calm for so long. In fact, the market in 2017 exhibited the least volatility of any year in history. So, when we see a drop of 4% in the S&P 500 in one day, it is natural to feel some anxiety. Before you get too worked up, consider these four steps during a market downturn:

1. If you believe in your financial plan, do nothing

As long as your portfolio is structured to support your financial plan, don’t worry about it, do nothing. Your financial plan should provide you with the target you need to hit at a certain age – usually retirement age. That targeted dollar amount should be the amount of investment assets necessary to generate enough income for the rest of your life after social security and other possible income sources are considered. Your focus should be that target in that year, not your total next week.

2. Don’t panic and sell

People sometimes panic when the market jolts and they exacerbate the downturn by selling assets in response. Note this study: The S&P 500 made 9.85% per year from 1995 through 2014. If you sold your stock mutual funds and missed out on just the 10 best days during that period, that return drops to 6.1%. For example, if you began 1995 with $100,000, you would have $75,078 more at the end of 2014 by staying invested. So, don’t panic and move your money into cash.

3. Review your plan

If the volatility in the market makes you nervous, reassure yourself by checking your progress toward your goals. Look at your financial plan to make sure it is up to date, congratulate yourself on your progress so far and focus on your long-term goals. If circumstances have changed and your plan needs updating, recent events could be a good reminder to do that.

4. Manage risk by rebalancing your portfolio

Your financial plan should be supported by a portfolio that allocates a percentage to different asset classes – such as stock mutual funds, long-term income funds, international funds, possibly real estate funds – in a way that is appropriate for your individual circumstances. Reviewing your portfolio quarterly to ensure those asset classes are still allocated according to your plan is a good way to manage the risk of your portfolio and to stay on track.

If you are interested in learning more about investing for the long-term while managing volatility, resulting in a better retirement outcome, see a recent post on the importance of a diversified portfolio: Continue reading “Four Things To Do During A Stock Market Downturn”

What I Learned In My First Year As A Financial Planner

Although I prepared by studying evenings and weekends for two years to meet the coursework and exam requirements of the Certified Financial Planner process, leaving my friends both at the University of Kentucky and in Frankfort wasn’t easy. After doing the same thing professionally for over 20 years, though, I was ready for a new challenge that would engage my brain in a new and different way. So, after 25 years’ experience as a client of Moneywatch Advisors, I joined the firm. After my first year in the financial planning profession, here is what I have learned – about our clients, about the financial services industry and, most important, about myself:

  • Work-Life balance is the way to live: I’ve always known this intellectually, but I have now learned it emotionally as I now have time to take my son to school every day, drive him to soccer and lacrosse practices and travel with my wife to see my daughter dance ballet in college. I still work hard because I really enjoy what I’m doing but I also prioritize spending time with my loved ones. I am living the life I want and my goal is to help my clients do the same. 
  • Our real value is our clients’ peace of mind: Our niche is serving busy professionals who are consumed with their careers and busy with their families and don’t have time to plan and manage their financial futures. From UK faculty and staff to CPA’s to government relations professionals, we help our clients determine what amount of investment assets they will need to achieve their financial freedom, how much to save to reach their goal, how to save taxes while they save and how to invest their hard-earned savings to help them reach their goals as soon as possible. Our clients are smart but don’t have the time and inclination to tackle these issues on their own.
  • Short-term goals are as important as retirement goals: I probably should have learned this earlier in life, but we all must enjoy life now while also saving for our financial freedom. Whether it be a travel experience or a vacation home, include those desires in your financial plan too.
  • Trust between advisor and client is vital: Let’s face it, other than going to the doctor, opening one’s finances to a professional is about the most personal business transaction there is. Trust is key and we have to work every single day to build it and keep it.
  • Numbers are fine but people are what matter: While the planning and investing advice we provide is the core of what we do, how we relate to people is the key. The more we know about our clients’ hopes and dreams, the better we can help them achieve them. Being a good listener is clearly a core competency of a good financial planner.
  • The financial services industry doesn’t have a very good reputation: Both the New York Times and the Wall Street Journal have written about advisors in some of the huge firms being compensated for pushing clients into products that may not be right for them. As independent fiduciaries for our clients, we are required to provide advice that is in the best interest of our clients, not just advice that is suitable. I don’t know why anyone would choose an advisor that isn’t required to meet that highest standard, but we have to work hard to distinguish ourselves from the rest of the crowd.
  • I really like helping people in a personal way: Since Moneywatch helped guide Lisa and me to our own financial freedom that allowed me to tackle a new challenge, it has been really fun helping others do what we’ve already done.

People sometimes ask me if I wish I made this move years ago, and I always answer, “no.” I really enjoyed my time at UK advocating for the students, faculty and staff that  make it such a special place. And I am more well-rounded as a person because of that experience. But, if you have thoughts of a profession change later in your career, I would wholeheartedly encourage you to explore that opportunity.