Tuesday, July 29, 2014

Meeting with the Financial Planner

In my opinion, there are two reasons to pay someone else to do something:  1) I am incapable of doing it, or at least incapable of doing it was well as the person I am hiring or 2) I don't want to do it.  Our decision to hire a financial planner was based a little bit on both.  As I mentioned in the first post in this series, the death of my father along with some other things going on in life have reinforced the idea that retirement is not that far away.  Further I now have a bigger pot of money to deal with at one time than I ever have before (my inheritance).  We have always managed our own investments and at one time we (particularly me) kept up with the world of personal finance.  I COULD do it alone I think, but looking at my portfolio performance lately, and looking at things I've read in the last month or so, it was pretty obvious that I had not been keeping up with things, and it was costing us money.  We decided to give a professional a try, and decided to use our CPA, as noted in the original post in this series.  Last week we had our second meeting with him.  The first was a no-obligation sales pitch about why we needed financial planning services and why our CPA was the person we should hire.  We also discussed fees--a percent of the assets under management.  By the second meeting, we had decided to hire him, so it was time to get to work.

What I Wanted:

In order to evaluate the performance of any professional, you have to decide on your goals.  Me, I want to be so rich I can buy whatever I want whenever I want and I want to be able to give lots to charity.  Ok, that's not realistic--I'm not Bill Gates and no matter how good my financial adviser, there are always going to be things I can't afford.  Seriously, though, I had several goals before we met with the adviser:

  1. I wanted to know if we were on track for retirement at or above our current standard of living, given our current income, current savings rate, and current expenses (particularly the three two-legged expenses that live in our house).  
  2. I wanted to know if we could save less and spend more--or if we needed to spend less and save more.  While I certainly want to save for the future, I don't want to be one of those people who lives in little better than poverty, only to die with a huge nest egg.  
  3. I know our investment portfolio is not doing as well as the market and our funds have low Morningstar ratings.  It it time to move them into something better and I wanted help with that.
  4. The funds we have were winners in their time.  Unfortunately, that time is past, and probably has been for some time.  I need someone to keep an eye on the funds and know when it is time to say goodbye.  I could do that myself--Morningstar ratings are readily available but the reality is that I haven't done so, and the paperwork involved in moving IRA money from one fund family to the next is a nuisance.  
  5. I wanted help with asset allocation.  I keep reading that people my age should not be fully invested in the stock market--that we should have bonds and other investments as well.  I don't know a lot about those options, but I do know that the mutual fund I own that has a lot of bonds in it is not performing well.  That doesn't exactly encourage me to buy more.
  6. I have a special needs son. I need to make sure he is taken care of when we can't do it any more.  
  7. I'd like to minimize taxes, both now and in the future.

Were My Goals Met?

We have only met with him those two times, and plan more meetings.  All is covered in the fee of a percent of our assets under management.  At this time, I'll tell  you this about meeting my goals:
  1. We aren't there yet.  He has said they have a program where they input your goals, your income and your savings and then tell you if you are on track, and that we will get to that.
  2. This is pretty much in the same place as #1.
  3. He got copies of all our investment statements, asked about our savings and what I'm expecting from my Dad.  We are keeping our Roth IRAs where they are since we are happy with their performance and giving him the other investment accounts to re-invest.  He works with a company that advises him about mutual funds and which develops model portfolios based on risk tolerance.  Also, he got the list of available funds into which we can invest our 401Ks and will advise us on which to choose as part of our overall portfolio. 
  4. That company also watches those funds and pulls people out if managers change, performance lags or their needs change.
  5. He agreed with me about bonds, even before I mentioned I wasn't crazy about them.  He said that in his opinion, at least at this time, the returns weren't worth the risks.  He had barely heard of peer-to-peer lending but thought it sounded interesting.
  6. He suggested seeing an attorney to set things up for my son, but did mention that we might want more savings than many people in our economic bracket, specifically to leave something for my son.
  7. He is going to take a look at our assets and our tax situation and see if there is anything else we can do.  Specifically, he is going to run the numbers on converting our IRAs to Roth IRAs.  Also, he agreed with me that living on the portion of my inheritance that I have already received, and socking away as much of my paycheck as possible in my 401K for the next six months was a good move (even though it means less money for him to manage and charge for).
Only time will tell whether we get our money's worth from him, but I figure that if we get the advice I'm seeking on #1 and #2, that's worth a year's management fee.  After that, he'll have to convince me either that he is making us more money that I would or that dealing with all of this is more trouble than I want.

Do you have a financial adviser?

Saturday, July 26, 2014

Sunday Snippets--A Catholic Carnival

Hello, and welcome to Sunday Snippets--A Catholic Carnival. We are a group of Catholic bloggers who gather weekly to share our best posts with each other. To participate, go to your blog and create a post titled Sunday Snippets--A Catholic Carnival. In it, discuss and link to your posts for the week--whether they deal with theology, Catholic living or cute Catholic kids. I'm mostly a book blogger so my posts are generally book reviews, some Catholic, some not. Make sure that post links back here. Once you publish it, come back here and leave a link below.
We also have a yahoogroup; signing up for it will get you one weekly reminder to post. Click here to sign up.

Question of the week:  Do you use facebook?  Do you promote your blog on facebook?  Why or why not?  My Answer:  Yes, I use facebook, and no I don't usually use it to promote my blog.  Most of my friends and family aren't readers and aren't really interested (at least in my opinion) in all the books I read.  I may post when I have a giveaway or if I REALLY love a book but I read facebook to learn about people and I hide all those game posts and other things that don't tell me what I want to know.  I am part of a facebook group of bloggers from my alma mater and I'll promote my blog there, but that's the reason for the page.  

Hope you all had fun last weekend without me.  I was on a Girl Scout trip to Savannah Georgia.  Here are some pictures:
In one of the lovely squares in Savannah

My daughter (pink skort) and her BFF

The troop at Juliette Gordon Low's birthplace

Luxury transportation (yes it is a school bus but it was air conditioned)
I got a lot of reading done on the bus and I've spent today blogging so I have quite a few posts for you:

The Summer Girls: My Review

The Summer Girls (Lowcountry Summer)

About the Book:
From New York Times bestselling author Mary Alice Monroe, the heartwarming first installment in the Lowcountry Summer trilogy, a poignant series following three half-sisters and their grandmother.

Three granddaughters. Three months. One summer house. 

In this enchanting trilogy set on Sullivan’s Island, South Carolina, New York Times bestselling author Mary Alice Monroe captures the complex relationships between Dora, Carson, and Harper, three half-sisters scattered across the country—and a grandmother determined to help them rediscover their family bonds. 

For years, Carson Muir has drifted, never really settling, certain only that a life without the ocean is a life half lived. Adrift and penniless in California, Carson is the first to return to Sea Breeze, wondering where things went wrong…until the sea she loves brings her a minor miracle. Her astonishing bond with a dolphin helps Carson renew her relationships with her sisters and face the haunting memories of her ill-fated father. As the rhythms of the island open her heart, Carson begins to imagine the next steps toward her future. 

In this heartwarming novel, three sisters discover the true treasures Sea Breeze offers as surprising truths are revealed, mistakes forgiven, and precious connections made that will endure long beyond one summer.

My Comments:
This week I got the closest I've ever been to the South Carolina Low Country--I visited Savannah Georgia with the Girl Scouts and we got there via school bus.  I had a lot of time to read and as I'd read, sometimes I'd look up and out the window.  As we were heading north from the Florida Panhandle through Georgia to Savannah, I think I got an idea of how the Low Country must look, as the descriptions in the book matched the scenery out my window.  

The relationship between sisters is often complex, and these sisters were really more like cousins--they only lived together during the summers, at Mawmaw's house on the beach.  None of these sisters had a conventional childhood and all bear scars because of it.  Mawmaw carries her own scars but wants her girls to heal.  

As noted above, Carson is the focus of this book but her sisters are more than bit players.  There is a little romance, a little introspection and a lot of family love.  It is a perfect beach read and I recommend it.  Grade:  B+.  

Review: No Problem: Turning the Next Corner in Your Spiritual Life

No Problem: Turning the Next Corner in Your Spiritual Life

About the Book:
With total book sales of more than 200,000 copies, spiritual teacher Robert J. Wicks brings his characteristic warmth and insight to his newest book, No Problem: Turning the Next Corner in Your Spiritual Life, an "inner workshop" for the soul. He shows readers that personal transformation is attainable through a simple, day-by-day process of identifying and turning the next corner of his or her spiritual life.
For Robert Wicks, forward motion in the spiritual life is "no problem." All it takes is the right perspective and a little bit of knowledge—both of which he provides through his book’s three-part structure: twenty lessons, three doorways, and thirty daily exercises. Wicks’s twenty lessons are bite-sized and practical, and he shows how the two great commandments (love God, love others) and the parable of the Good Samaritan form doorways to spiritual riches. In part three, Wicks provides the tools and coaching for readers to conduct their own inner workshops. In these thirty spiritual exercises, Wicks invites his readers to acknowledge, accept, and start where they are, employing simple practices and assuring that God’s grace will carry them around the next spiritual corner.

My Comments:
Like most books dealing with the spiritual life, this one doesn't have any ground-breaking insights.  It doesn't tell you how you can live life on your terms, ignoring God and then being able to turn Him on when desired.  Robert Wicks quotes the oldies but goodies and suggests reading short passages in the book and then living with them for a day.  Becoming more spiritual should make you a better person, more the person God wants you to be and this book strikes me as a gentle invitation and tour guide.  Grade:  B.

I'd like to thank the publisher for making a review copy available vial NetGalley.  

Lending Club: How I Invested My Money

If I wanted to learn about investing in the stock market, I would go to one of many websites where you can enter a portfolio.  I'd "give" myself a sum of money to spend, "invest" it by picking stocks or funds on a particular day, and then, after entering my hypothetical portfolio, watch it for a several months and compare it to both published indices like the Dow Jones and S&P and to what I could do with the money elsewhere.  Unfortunately, I couldn't find a way to invest in the Lending Club with play money.  Fortunately, I recently inherited a nice sum of money so risking $1,000 on something I knew nothing of a few weeks ago didn't sound quite so unreasonable.

I split the $1,000 into two pots; the first I used to buy 20 newly issued notes, the second I used to purchase 37 notes on the secondary market.  Here are my results:

If you click on the pictures  you can see them better.  In short, I bought the new notes at face value so I got 20 of them at $25 each for a total of $500.00.  The resale notes were generally bought at a slight mark-up.  Also I decided to gamble with small portion of the money and bought some discounted notes that were in grace period (late but not so late as to incur late fees).  I then decided I didn't have the stomach for gambling so I sold them, losing $10.80 in the process.  If you add the $10.80 to the price of my notes and add the cash still in the account, you get to $500.00 for the "used" portfolio.  The question I'm going to explore over the next year is whether peer-to-peer lending is a good idea for me, and, if so, whether I do better with new notes or resale notes.  

Thursday, July 24, 2014

The Lending Club: My New Toy

Most of the time when I mention products on this blog, it is because I was given a review copy or some other incentive to do so.  In this case, the only incentive is the hope that search engines will pick up this post and grow my readership, so my ad revenue increases.
Used with permission
One thing I learned about when reading financial planning and investment blogs was peer-to-peer lending.  Basically, this is a process whereby investors loan money to people seeking unsecured personal loans.  It is a process that cuts out what we consider the normal middleman on such an occasion, the bank.  The borrower, who must have a good credit rating, applies at the website of the peer-to-peer lender (I use Lending Club; Prosper is the other big name).  After whatever quick review is done, I'm guessing by computer, the loan is listed on the site, with the listing giving some information about the borrower, the amount desired, and the proposed interest rate.  At that point investors (the lenders) can agree to lend money to the borrower, and they do so in increments of $25.00.  In other words, you may want to borrow $25,000.  I (and other investors) decide whether we think lending you money is a good investment, and then decide how much to lend  you--and the most common amount for small investors is the minimum, $25.00.  The loan goes through the underwriting process, and the information on the application is checked for accuracy.  Once everything checks out, and once enough people have committed to the loan to provide the funding requested, the loan is issued (and they are not guaranteed to be issued; at least a third of the loans I have selected have not been issued, either because Lending Club decided not to complete the process or because the borrower decided not to do so.  I've read that over half the applications are rejected).  At this point Lending Club takes a commission from the borrower, so the full amount of the loan is not disbursed to him/her.  The attraction for borrowers is that these loans, at somewhere between 7.14% and 25.99%, have lower interest rates than credit cards or other sources of unsecured loans.

The borrower is required to set up an automatic payment from his/her bank account to Lending Club.  Lending Club receives the payments monthly (we hope) and then disburses the money, minus a 1% fee, to the lenders.  For lenders, the attraction is a higher rate of interest than is paid by the banks.  After reading about this process and reading a bunch of blogs and so forth about peer-to-peer lending, I decided to give it a try as an investor.

With any investment, you have to look at the risk vs. the reward.  The main risk with peer-to-peer lending is that the borrower will default and not pay all or part of the loan.  Since the loan is unsecured, Lending Club's recourse is limited.  According to historical data (which you can download and crunch to your heart's content), the average interest rate on their "A" rated loans was 7.73%, however the average rate earned on "A" rated loans, after factoring in defaults and fees was 5.34%.  You can see all the data here. There is some "interest rate" risk--risk that interest rates could rise so the "high-paying" note you are holding could turn out to be low-paying compared to what is currently available.  Still the risk of that is lower than with a bond because instead of all the principal being repaid to you at the end of the loan term,  you get a small amount back every month.  The final risk is a liquidity risk--the chance that you won't be able to get your money when you need it.  Lending Club isn't the place for money you may need within a couple of days.  If you need your money within a week or two, you may have to sacrifice some principal to get it, but there is an active secondary market for the loans, so you should be able to get most of  your money is a relatively short time.  I'll talk more about that secondary market in another post.

After reviewing all the information I could find about Lending Club, I decided to become an investor.  Since that time, I have spent a lot of hours "playing with my money" and I decided I would blog about my experience.  Stay tuned for further posts in this series.

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