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.

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.