Practicing What We Preach When it Comes to Investing

 When choosing a money manager one of the aspects we utilize to evaluate if they are worthy of our client’s money is whether or not they eat their own cooking. 

According to Morningstar research, money managers who had invested $1 Million or more in the portfolios they managed outperformed 58% of their peers over the 5-year period ended July 2009.

Having their own money on the line is a great incentive to perform putting the managers on the same side of the table as their investors. This is also a belief we carry over to our own practice. Many of us here at the Center invest in the same portfolios we build for our clients.

We also like to understand how our managers are compensated. We find it is very important to choose managers that are compensated heavily on longer term returns as opposed to the most recent year’s performance. This aligns the managers with the clients’ long-term goals such as retirement or education funding. The chart below shows how difficult it is to achieve consistently positive returns over short time periods. The longer the time frame you have, the more likely it is to have positive returns. Most investors get to “hang out” in the green section meaning we have a longer period of time to invest to achieve those positive returns and we like money managers who focus on these time periods as well.

It is important for your Financial Planner to practice what they preach. For example, I just recently met with my financial planner (yes financial planners also need financial planners from time to time!). We evaluated my overall financial plan including retirement and education funding to make sure that our family’s investment and savings goals are appropriately aligned with our overall plan. This is the exact same process we believe in following with our clients.  Our firm encourages this for all of our employees and many take advantage of this excellent benefit.  It is human nature to care more about the process and the investments when you have your own future and money on the line!

Angela Palacios, CFP®is the Portfolio Manager at Center for Financial Planning, Inc. Angela specializes in Investment and Macro economic research. She is a frequent contributor to Money Centered as well asinvestment updates at The Center.

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The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.

4 Steps to Save You Big Headaches on Your Summer Vacation

 Though we have experienced some glorious summer weather, June 21st actually marked the “official” start of summer.  The shift in season brings a host of activities – evening strolls, outside concerts, boating, picnics, and if you are one of the lucky ones…taking a summer vacation! 

Whether you are hoping to relax by tranquil waters or seeking the rush of scaling a mountain, few can disagree there is nothing like a summer vacation.  In my family, planning is half the fun.  The discussion of our destination, where to stay, who to visit, and what to pack gets us ready for the anticipation of our departure. 

But when you are planning time away from your home base, it is very important that you prepare yourself financially.

Here are some behind-the-scenes items to add to your travel to-do list: 

1. Research the “financial” aspects of your destination well in advance.  Get an idea of where to access ATMs and banks in the area. It is also prudent to understand the local currency and exchange rate(s) if traveling abroad. 

2. Be sure to have different types of currency available during your time away (if possible). This can include cash, traveler’s checks, debit and credit cards.  Not all debit or credit cards may be accepted where you are traveling so carrying cash for daily expenses is always helpful. 

3. Notify your credit card companies and banks when and where you will be traveling.  This ensures the utmost safety for your accounts. If you do not give notification, that souvenir you are trying to purchase may be flagged as potential fraud and your account frozen for unauthorized activity! It is also a good idea to find out what your service fees will be for utilizing credit while in a foreign country. 

4. Make a list (or copies) of all your pertinent information like credit card account numbers, insurance cards, passports and driver’s licenses.  Keep this list in a secure spot at home or with your financial planner.  It is always hoped it will not be needed but should a situation arise, you will be thankful you have this information. 

Going on a vacation, whether a quick get-away or trip around the globe, is such an exciting part of the summer.  Taking a small amount of time to engage in some financial housekeeping will help ensure your time away is as relaxing or adventurous as you planned!

College Students and Debt

Recently I read an article about the level of debt college students have at the time they graduate.  No, I am not talking about student loans. Those are overwhelming enough.  I am talking about credit card debt.  One study found that the average college student has 4 to 6 credit cards.  The combined balances on those cards averaged between $3,000-7,000. Can you imagine beginning a new career with that much financial burden? It is a formula for disaster.

I remember, in what seems like the not-so-distant past, our 17-year-old college freshmen whispering through the phone that no one on her floor had a clue of how to balance a checkbook and they were bouncing checks all over the place. Today, you’d replace “balancing a checkbook” with “responsibly handling a credit card” but in either case, it is a reminder that when students enter the halls of higher education, they do not have instant financial savvy. But it can be learned. Wise parents give their student some financial responsibility while they are still under their wing. Before leaving the parental home:

• Try designating bills they have to pay with their own earned money or an allowance.
• Talk to them about the use of credit and more importantly the consequences of misuses of credit and what it can mean when trying to purchase a car or qualify for a mortgage.
• Start with a loaded credit card, they are a great way for students to experiment. Its easy to see how quickly pizza and incidentals can add up over time. When the card is empty, it can be a long month.
• Let them make small mistakes under your guidance and let them work their way out.

Last but not least, tell your student you are going to have joint statements for whatever time period you deem necessary to give them help. Discuss money situations---that is what adults do.

Keep in mind you taught them to skate, you taught them to ride a bike and to drive a car.  Managing money should get the same attention.