A Guide to Starting Family Financial Conversations

A Guide to Starting Family Financial Conversations

By Jeff Johnson I’ve been a close observer of the way families make, communicate and implement financial decisions for most of the last four decades. In that time, I have learned that many individuals and couples make family wealth and lifestyle planning decisions privately, then avoid discussing them with other family members because it’s an uncomfortable conversation. The family leader or leaders usually know it would be better, in many cases, to explain details, discuss issues, and secure commitments to and acceptance for the family’s financial direction. Clarity equals confidence, and being financially confident empowers a fuller life for all involved. Yet many, if not most, family leaders struggle to share the intimate specifics, fail to collaborate on decisions, or neglect to have reasonable and open conversations about a range of family wealth and life planning matters. In my experience, the reason for this is twofold. First, as I previously mentioned, it’s just plain uncomfortable (or, at least initially, easier to do nothing at all). Second, few people are trained to hold money discussions and just don’t know where to start or how to do it. So, you may ask, what exactly is involved in starting a constructive dialogue about your family finances and the decisions that affect them? Having worked with hundreds of families to meet their life and long-term financial goals, and based on my unscientific observations, here is where and how you might want to start your family’s next important conversation about money: 1. The late Stephen Covey, a legendary author and speaker, advocated planning by “starting with the end at the beginning.” Before sitting down for...
Making Harmony with Money

Making Harmony with Money

By Tad Gray Dear Erika and Johannes, There’s a saying that goes, “The cobbler’s children have no shoes.” It means that we parents don’t always share our professional know-how with our own children. But now that you’re on the cusp of your careers, I would be remiss not to provide you with some financial guidance. Over the years I’ve been proud to watch you two grow to a remarkable level of artistry, and it has reminded me of all the joy I got from making music when I was younger. I’ve loved watching you from the audience just as I’ve loved the opportunities we’ve had to make music as a family. You’ve each demonstrated so much discipline in the pursuit of your craft. And I want you to know that that same discipline is all you need to manage the more practical sides of your artistic careers. As you know, I stopped pursuing music professionally when I was 23 – not much older than you are now – in favor of focusing on business. While I don’t regret that decision, financial concerns were an important part of it, so I’m sensitive to the challenges you’ll face. And since your mom continued her own musical career, I have remained connected to the economic reality of a musician’s life. If there’s one thing I’ve learned during my career in finance, it’s that your mindset is one of your most important tools. You know this is true for music, too. Just as our performance improves when we become more aware of our full selves, so does our relationship with money. With the right...
How to Turn Money Into Happiness

How to Turn Money Into Happiness

By Joe Delaney Have you ever heard money can’t buy you happiness? Truer words were never spoken. However, as someone who has worked in the financial world for decades, I can do tell you money can be a useful tool to get you there. I recently participated in the Laguna Beach Aquathon, an annual event dating back to the 1980s. Participants start at Emerald Bay and head south for about 7.5 miles of swimming, bouldering, and running along the coastline to the finish at Three Arch Bay. If that sounds challenging, it is. So why would I do it? What does this have to do with money and happiness? MONEY AS A TOOL TO ACHIEVE THE JOY OF PHILANTHROPY While there is no registration fee to participate in the Aquathon, participants are expected to make a donation. It has been a charitable event for years. In fact, thanks in part of Aquathon donations, the Miocean Foundation was able to announce a successful completion of its mission to clean up all 42 miles of Orange County’s coastline that have public beaches. This year our donations went to support the Laguna Beach Junior Lifeguard Foundation. The cause is near and dear to my heart, of course, as a former Laguna Beach lifeguard myself. The organization “supports the professional, physical and mental development of Ocean Lifeguards and Junior Lifeguards of Laguna Beach.” But philanthropy alone is not why I have done this every year for eight years. MONEY AS A TOOL TO ACHIEVE THE JOY OF FRIENDSHIP Going down for the Sunday event always means a whirlwind 48 hours. I stay with...
Rediscovering the Size Effect

Rediscovering the Size Effect

Larry Swedroe, Director of Research, 6/26/2018 The first major anomaly to the first formal asset-pricing model, the capital asset pricing model (CAPM), was the size effect. The size effect is the phenomenon that small-cap stocks on average outperform large-cap stocks over time. The size premium is the average annual return achieved by being long small-cap stocks and short large-cap ones. The size effect was first documented by Rolf Banz in his 1981 paper, “The Relationship Between Return and Market Value of Common Stocks,” which was published in the Journal of Financial Economics. After the 1992 publication of Eugene Fama and Kenneth French’s paper, “The Cross-Section of Expected Stock Returns,” the size effect was incorporated into what became finance’s new workhorse asset-pricing model, the Fama-French three-factor model (adding value and size to the CAPM’s market beta). Unfortunately, the size premium basically disappeared in the U.S. after the publication of Banz’s work. Using data from Dimensional Fund Advisors, from 1982 through 2017, the annual size premium in U.S. stocks was just 0.9% on an annual average basis and 0.0% on an annualized basis. However, it’s interesting to note that, despite the absence of a premium to small-cap stocks, over the same period, Dimensional’s U.S. micro-cap fund (DFCSX) returned 12.2%, providing a 0.6 percentage point higher return than the Vanguard 500 Index Fund (VFINX), which returned 11.6%. I’ll come back to that point in my summary. (Also, in the interest of full disclosure, my firm, Buckingham Strategic Wealth, recommends Dimensional funds in constructing client portfolios.) Size Needs Other Factors The lack of a size premium over the past 34 years has led...
The Risk and Return Implications of ESG

The Risk and Return Implications of ESG

Larry Swedroe, Director of Research, 6/11/2018 Environmental, social and governance (ESG) investment strategies—along with the narrower category of socially responsible investing (SRI)—have gained quite a bit of traction in portfolio management in recent years. In 2016, funds based on such strategies managed about $9 trillion in assets from an overall investment pool of $40 trillion in the United States, according to data from US SIF. In addition, the organization’s 2016 survey of sustainable investment assets found that in the U.S., climate change was the most significant environmental factor influencing asset allocations. Value Play In ‘Sin’ Stocks? While ESG investing continues to gain in popularity, economic theory suggests that if a large enough proportion of investors chooses to avoid “sin” businesses, the share prices of such companies will be depressed. They will have a higher cost of capital because they will trade at a lower price-to earnings (P/E) ratio. Thus, they would offer higher expected returns (which some investors may view as compensation for the emotional “cost” of exposure to what they consider offensive companies). Academic research has confirmed that the evidence supports the theory. Higher Fees OK Interestingly, Arno Riedl and Paul Smeets, authors of the study “Why Do Investors Hold Socially Responsible Mutual Funds?”, which appears in the December 2017 issue of The Journal of Finance, found that investors are willing to pay significantly higher management fees on SRI funds than on conventional funds, and that a majority of them expect such funds to underperform relative to conventional funds. In other words, investors understand there is a price (in the form of lower expected returns) for expressing their social values,...
The Financial Advisors’ Guide to Being a Better Human

The Financial Advisors’ Guide to Being a Better Human

Tim Maurer, Director of Advisor Development, 3/23/2018 I recently received a text message from my mother that I’ll never forget, letting me know a long-time family friend was checking her mail when a tree branch fell and killed her, instantly. Her legacy is a redemptive one, but her loss no less tragic. In the same week, I heard from a colleague how her sister’s serious medical diagnosis had upended her life and work. And only two weeks prior to that, I was just settling into what I thought was a routine annual meeting with one of my most beloved clients when she floored me with the news that she’d been recently diagnosed with cancer, and would be enduring surgery shortly. This confluence of tragic news stopped me in my tracks. Discontinuing Education So much of the work we do as financial advisors teaches us to educate clients to adequately prepare for and respond to some of the worst news that befalls any of us–like death, disability and divorce. And the longer we spend in our careers, receiving news of painful circumstances that have befallen our clients can become commonplace, even predictable. We’re well trained on the tactical and technical elements of this planning, but we get virtually no training at all regarding how to properly receive this news, how to process it ourselves, and how to help our clients through it. My professional certifications and affiliations require 90 hours of continuing education in a host of technical disciplines every two years, but not a single hour on skillfully, compassionately navigating client grief. We’re inundated with training to become technicians, but suffer...
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