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The Results Are In: Female Investors Are Beating Men

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Guys, here’s one thing you may want to rely on your wife for – investing advice. That’s right, the evidence has been mounting, and the conclusions are clear – women are better investors than men.

Surprised? You’re not alone. Even most women themselves believe they are far less superior than men when it comes to investing. There are plenty of studies to show that. But when you examine the actual performance results, women’s portfolios regularly outperform men’s.

Recently, one firm wanted to bring this knowledge to the forefront. State Street Global Advisors put up a statue of a girl facing off with the Wall Street bull. The media dubbed her as “the fearless girl.” It got a lot of attention, this girl making such a bold statement on a street where it’s considered a man’s world.

Executives from the company commented to multiple news outlets that they strategically placed the statue there on International Women’s Day, to kickstart the conversation of women and investing. In particular, the fact that women are indeed better investors than men.

Boys Will Be Boys – A Good Thing When Investing?

Terrance Odean and Brad Barber, professors at Berkley’s Haas School of Business, are some of the most prominent researchers on the gender gap in investing. Based on their research in the 90s, they found that men traded 45% more than women. This research led to their paper Boys Will Be Boys, which has been published in dozens of scholarly journals.

Actively trying to time the market commonly leads to lower returns. Odean and Barber site this as the biggest cause of the widening gender performance gap. Men’s active trading during their research period caused them to have average returns that were a full percentage point lower than women.

In comparison, they found that women tend to be better at behaving in ways that lead to long-term investing success. This means adhering to some of the golden rules of investing, such as staying in the market, weathering market fluctuations without making drastic changes, not taking unnecessary risk, and sticking to the strategy that best aligns with their goals.

Essentially, women tend to be “buy and hold” investors, heeding the advice of experts like Buffett and Bogle. They’re much better at investing than they give themselves credit for.

The Results Are In

According to research from Fidelity, women outperformed men by 0.4% in 2016. That may not seem like much, but it can add up over time. Especially given the fact that the study found women have outperformed men for the last decade. Women also saved 9% of their paychecks, compared to an average of 8.6% saved by men.

That’s how women can end up with a lot more money than men overtime.

Betterment PhD research scientist, Sam Swift, also built a similar case. In a recent study, Swift went back through 60,000 investment accounts from January 1, 2012 through January 6, 2016, and examined the account holder’s activity. Here are three key findings from the study:

1. Women logged into their account 45% less frequently than men. Less logins mean a decreased chance of seeing your portfolio when it’s down, which can lead you to make a bad decision.

2. Women take less risk than men. They had a tendency to stick with their recommended allocation model, while men deviated from the advice, usually taking more risk than suggested.

3. Women tend to be much better at staying disciplined during market fluctuations. They changed their allocation 20% less frequently.

Yet, despite the volumes that this evidence speaks, another study from Fidelity found that 8 in 10 women hold back from talking about their finances and investing, simply because they lack the confidence to do so. The majority also don’t think they’re smart enough to talk to a professional advisor on their own, and believe that they are grossly underprepared for retirement.

How can this be what women truly think, when they’re in fact the investing alpha? Welcome to the conundrum of conundrums in finance.

The Psychology Behind It All

On the surface, this evidence simply highlights the difference in performance between male and female investors. But when you dig deeper, it gives you a unique look into the psychological make-up of men and women.

Odean and Barber’s research led to an important finding – men tend to be inherently overconfident, and it shows up in their investing behavior.

This is what they believed led to men’s active trading, and in turn received most of the blame for their poor performance. Overconfidence bias has been most commonly linked to the bad behaviors of marketing timing and stock picking, which can wreak havoc on your portfolio, no matter your gender.

Conversely, the female psyche causes women to be inherently risk-averse and goal-oriented.  They are focused on the long-term rather than the short-term, and don’t feel the need to trade in and out.

This lead to better performance for women. However, women’s lack of investing confidence causes many of them to not invest, remain ultra-conservative, and avoid seeking professional help. That’s when their nature becomes destructive.

Perhaps that’s the reason the conundrum still exists – women behave in a way that leads to solid investment performance, but they think in a way that fosters little to no confidence in their abilities.

Why Does It Matter to You?

The point of the studies cited here, and this article, aren’t to dub one gender as the savvier investor. It’s also not to claim that gender is a direct driver of investment success. Rather, it’s to better understand the role psychology plays in investing, and where the strengths of each gender lie.

Each gender could learn something valuable from the other. Case in point, women need to become more confident when it comes to investing and their finances. Not because of gender equality, but because it’s vital common sense given the reality we face today. According to Pew research, 40% of women already out-earn their spouses. Furthermore, nine in 10 women will be the sole financial decision maker in their household at some point in their life.

Men could benefit by humbling themselves to the market and reducing active trading. In addition to Odean and Barber’s findings, DALBAR’s 2016 annual report on investor behavior proves that bad investor behavior is the leading cause of under-performance, and contributes to poor performance over the long-term.

In essence, both men and women would benefit by understanding that a lack of confidence, as well as overconfidence, can hurt your performance.

You get one shot at this financial journey – one. Failure is not an option. So, you need to manage your money in a way where there is a very small possibility of failure. Above all, that means taking a seat at the table. It also means staying disciplined according to your investment policy statement, and implementing an investment strategy that aims to limit downside exposure and mitigate volatility, while still capturing potential. Now, that’s a philosophy that can work no matter what gender you are.

9 Things Successful People do Before 8:00 AM

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Successful people are a rare breed. They’re willing to do what others are not, and they know the importance of practicing good habits daily. In fact, they’re almost obsessive about it. While you may think they’re crazy, they know adhering to these simple daily disciplines is what makes their day super productive. For most successful people, one of their most important daily disciplines is their morning routine.

The morning is one of the most important times of your day. I don’t know about you, but I’m much sharper at 7:30 in the morning than I am at 3:30 in the afternoon. That’s my time before swimming through a flooded email inbox, putting out fires, meeting with dozens of clients, and running a company.

That’s why it’s so important to make the most of your morning. You need to craft a routine that sets you up for successful day – that gets you motivated, energized, and feeling like you’ve accomplished something before you even step foot in the office. Otherwise, how is your attitude going to be for the rest of the day?

Supercharge Your Morning Routine: 9 Things Successful People do Before 8:00 AM

I took the time to perfect my morning routine. I learned what other successful people did with their mornings, and modified them to fit my lifestyle. This is the one daily discipline I try to stick to as much as possible. Although sometimes, “life” does get in the way. But I’ve realized that on the mornings I follow it, my day is much more productive.

To help you find inspiration for crafting your ultimate morning routine, I want to share mine with you. Here are nine things that successful people do before 8:00 am:

1. Get up. A common denominator among successful people is that they’re early risers. Forming this habit can be hard at first, but if you stick with it, it will become second nature. Waking up early ensures that you’ll maximize your morning routine, because you’ll have more time to do it. You’ll have more “you” time, which after all, is the whole point of your morning routine. However, it’s important not to sacrifice your sleep simply to wake up early. Make sure you get at least 7 hours of sleep at night. Not only is it important for your health, but it makes getting up early easier to do.

2. Learn something new. It’s easy to forget about this important ingredient in the formula for success. Luckily, the morning is the perfect setting in which to work on your personal development. Mornings can bring peace and quiet, before the kids wake up and the noise from the daily grind starts. Take advantage of your morning by using it to read 15 pages of a good book, catch up on your favorite blog, or read the latest article written by one of your mentors. (LIFE HACK – If you exercise on a stationary machine like a bike, treadmill, or elliptical, reading is a great way to make the time go faster.)

3. Exercise. If you’re like me, when I come home, I’m in family mode. The kids have activities to get to and homework to do, and I want to spend time with my wife. The last thing I want to do – let alone have time to do – is exercise. That’s why the morning is one of the most ideal times to get your work-out checked off your list. Not only that, but exercise is proven to boost your mental functioning, energy and improve your mood. A morning workout can mean more energy and clarity during the day. Plus, your health is important – make it a priority, even if you can only spare 20 minutes.

4. Prioritize your tasks/goals for the day. Think about what you have on the agenda for the day. What are your important “must dos?” One of the first things I do in the morning is write down my priority actions for the day. I know that even if I only get those things done, I still had a productive day. This helps you walk into your day with a game plan, and prevents you from getting lost in things that can detract from your productivity.

5. Write down one thing you’re grateful for. Keeping a positive outlook on life, being successful, it all starts with gratitude. It’s easy to get caught up in the negative – to only see the problems, or what could be when you look at your life. It’s important to consciously stop and remind yourself of all the good things you have in your life. Keep a gratitude journal, and every morning, write down one thing that you’re grateful for. It doesn’t need to be complicated. Then at the end of the year, you’ll have identified 365 things that you’re grateful for. Sounds like the foundation for a happy life to me.

6. Don’t look at your phone. One of the biggest mistakes you can make in the morning is waking up and immediately looking at your phone. Checking emails, looking at social media, are things that can throw off your morning routine. Remember, this is your “you” time – it’s okay to shut the rest of the world out for a few hours. But if you’re one of those people who just can’t resist the glow of your screen, try to modify when you check it. Set yourself a time limit, and say that you’re not going to check your phone until 7:30.

7. Eat breakfast. Breakfast is the most important meal of the day – in case you haven’t heard that before. I’ll be the first to admit I always struggle with this one. But, making sure that you eat breakfast is almost like working out. It can boost mental functioning, energy and focus throughout the day. It’s also proven that people who eat breakfast eat less during the day, and tend to weigh less than people who don’t. Even if it’s a quick protein shake or breakfast smoothie, try and squeeze it in.

8. Cross one thing off your personal to-do list. Sometimes, finding the right work life balance can be difficult. This is another instance where your morning can be useful. Take this time to try and cross one thing off your personal to-do list – whether it’s to get that week-old laundry put away, spend time with your spouse, take out the trash, or empty the dishwasher. Knowing that you can go home at the end of the day without a million things to do around the house can be great for productivity.

9. Finally, get to work. Now, it’s 8:00. It’s time to work – to step out into the world, answer emails, take phone calls, and grind.

Why Does it Matter to You?

Sticking to a morning routine means you’ll be practicing habits that foster good health, higher productivity, and the ability to handle situations thrown your way during the day.

By no means is the routine I’ve laid out here the end all be all solution. These are simply common denominators I’ve found in the morning routines of other successful people I admire. I then built a routine I could apply to my life.

Your morning routine will be unique to you. Maybe nighttime is the best part of the day for you to exercise. Maybe you like to start working at 7:30. Maybe you read on your lunch break. Whatever your simple disciplines may look like, the point is to make a morning routine that fits with your lifestyle, and that you can stick to. That ensures you’re practicing good habits from the moment you wake up, and that your day will be as productive as possible. It may take a few attempts to find what will work best for you, but once you find your groove, the positive impact it can have on your entire day is incredible.

15 Common Sense Money Principles That Will Change Your Life

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The game of reaching your full financial potential is 70% behavior. Successful people practice good habits, every day, for their entire life. They’re willing to do what others are not. Successful people also live intentionally with their money – meaning they use their money to live life on their terms and conditions.

That’s really what the secret “formula” boils down to. How you behave, and the choices that you make every day. Those choices are what determine your success.

You see, how to find financial success isn’t some huge secret or algorithm that takes expert-level knowledge to crack. If you were to ask a wealthy person how they got there, you would probably be shocked at how simple their answers are. You’d probably leave the conversation thinking, “Heck, even I can do that.”

And you absolutely can. That’s because much of what successful people do when it comes to money is simply abide by common sense principles – many of which I’m about to share with you here.

Here are 15 common sense money principles that will change your life:

1. Spend less than you make. The is probably the most important common sense principle you can apply to your financial life. If you are constantly overspending and maxing out your lifestyle, you’ll never reach your full financial potential.

2. If you can’t pay for it in cash, you can’t afford it. This mantra is the best way to avoid drowning yourself in credit card debt. Waiting to make large purchases until you have the money will always pay off more than spending money you don’t have.

3.Forget about the Jones’s. Living up to society’s definition of “rich” can be costly. Wealthy people know what their definition of financial success is – and that’s the only one that matters. They would gladly defy societal standards, rather than living a deceptively poor lifestyle just to keep up appearances in the eyes of their peers.

4. Protect yourself. Stuff happens. And when it does, your financial foundation can quickly crumble if the proper defenses aren’t in place. You should seek to protect every aspect of your life’s work – from material assets like your home to your most important asset, you.

5. Pay your credit bills in full every month. If you want the second fool-proof way to avoid going into credit card debt, don’t charge more on them than you can afford to pay off every month.

6. Money doesn’t buy happiness. Having money doesn’t mean anything. It’s how you use your money that creates your emotional response. There’s plenty of research to prove you derive the highest degree of happiness when you spend your money on experiences, not things.

7. Slow and steady wins the race. No one becomes financially successful overnight. It’s a long road of practicing good habits and staying disciplined. If you keep searching for the instant button, or speculating and gambling with your money, you’ll never reach your full financial potential.

8. Get comfortable with being uncomfortable. Investing is one of the most unnatural things you’ll do in your life. But you have to be okay with that – you have to be okay with the fact that markets rise and fall. Staying disciplined according to your Investment Policy Statement is the best way to find investing success.

9. Time is your most valuable resource. Stop thinking that you have time to catch up. Not only does your money need time to grow, but it needs time to bounce back from drawdowns. The longer your money is invested, the better your chances of financial success. Investing early and investing smart are crucial.

10. Out of sight, out of mind. If you’re like me, it’s easy to find a home for the money you see sitting in your checking account. One of the best ways to curb unnecessary spending and boost savings is to set up automatic deposits from every paycheck to go straight to your savings or investments.

11. Costs matter – a lot. Costs from taxes, expense ratios, and advisor fees add up. They directly impact your bottom line. Over the long-term, they can eat a large portion of your wealth. Be sure you know how much your investments are costing you, practice tax management, and work with an advisor who is transparent on the fees you pay directly to them.

12. Money is like a kid. It’s incapable of managing itself – think of how your kids would’ve turned out had you let them make their own decisions, without any guidance or discipline from you. Money is the same way. You have to apply structure and discipline to how its managed, and you have to tend to it on a regular basis.

13. Your most important values must align with your financial actions. If your financial actions aren’t furthering your most important values, you’re probably not going to accomplish the goals you set for yourself. Values should play the same role in your financial life as they play in your daily life – they should guide your financial actions and priorities.

14. Be debt free. Or at least bad-debt (i.e. credit card, other high interest debt) free. Carrying substantial amounts of high-interest debt directly affects your ability to save and invest for your future. It makes everything else in your financial life have to work that much harder to pick up the slack.

15. Live the life you want. Wealthy people know their “why” behind money – you need to know yours too. Why do you work, why do you invest, why do you do any of it? Your answers will be specific to you, but it ultimately comes down to being able to live the life you want. That’s the real goal – to have your money work for you, so that you can reach your full financial potential. But you have to start with “why.” Otherwise, you don’t have anything to fight for. You can’t live intentionally with your money, because there’s nothing guiding your behavior.

Warning: Checking Your Portfolio Often is a Good Way to Lose Money

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8 billion. That’s the number of times per day Americans collectively check their phones. Probably because smart phones have become the hub of our lives in a certain way – virtually anything you need, there’s an app for that. Including your investment performance. But frequently checking your portfolio is a good way to lose money – and it’s getting harder not to look.

Stop Checking Your Portfolio

We pride ourselves on making technology available to you that puts your entire financial life in front of you, in real-time. That makes checking your investment performance as simple as pressing a few buttons. And we intend to keep advancing that technology, to make managing your financial life as easy and convenient as possible.

With that in mind, call me crazy for what I’m about to say – You should stop looking at your investments.

There are plenty of reasons for why you should stop constantly checking your portfolio. At the top of the list is your mental and financial health. While you may think checking your portfolio often is a good habit, in reality this leads to increased stress, impulsive, emotionally-charged behavior, and poor investment performance.

The market is a volatile animal – it’s a toss-up every day whether it will be up or down. And here’s a secret – the market is in a drawdown often.

It can even fluctuate hundreds of points one way, and back the opposite way before the closing bell rings. The average daily swing for over 40 years has been +\- 1.4%. So, the more often you check your portfolio, the greater your chances of seeing it when the market is down.

And when you see negative numbers staring at you, your emotions will stop you in your tracks every time. Thanks to a little thing called myopic loss aversion.

What Behavioral Finance Tells Us

Myopic loss aversion was first introduced by Daniel Kahneman and Amos Tversky in 1984. This sliver of behavioral finance states that people dislike losing money more than they like making it. In other words, we feel the pain of a loss much more deeply than the happiness of earning.

Investors who check their portfolios often will perceive investing to be riskier than investors who don’t. According to Betterment’s data on login frequency, checking your portfolio quarterly instead of daily can reduce the chance of you seeing a moderate loss (of -2% or more) from 25% to 12%.

In a 1997 study by Kahnerman and Tversky, the idea that loss aversion reduces investor returns was confirmed once again by their research. Take this statement straight from their abstract:

“The investors who got the most frequent feedback (and thus the most information) took the least risk and earned the least money.”

In other words, the more time you spend checking and analyzing your portfolio, the more likely you are to let your emotions take control.

The Beer Goggles of Investing

Think of loss aversion as the beer goggles of investing – you’ll be more likely to see a loss the more often you check your portfolio. This can then make you think your investments are riskier than they really are. If you listen to your emotions, you can end up making some bad decisions – changing your risk tolerance, selling or liquidating funds, and so on.

And very rarely do these decisions end up helping you. Research proves that investor behavior is the leading cause of under-performance, and contributes to poor performance over the long-term.

DALBAR’s annual study of investor behavior shows that in 2015:

1. The average equity mutual fund investor underperformed the S&P 500 by a margin of 3.66%. While the broader market made incremental gains of 1.38%, the average equity investor suffered a more-than-incremental loss of -2.28%.

2. The average fixed income mutual fund investor underperformed the Barclays Aggregate Bond Index by a margin of 3.66%. The broader bond market realized a slight return of 0.55% while the average fixed income fund investor lost -3.11%.

3. In 9 out of 12 months, investors guessed right about the market direction the following month. However, the average mutual fund investor was still not able to keep pace with the market, based on the actual volume and timing of fund flows.

You also need to remember that your portfolio is made up of several different asset classes, according to your risk tolerance. Even when the market is “up,” one or more of the asset classes in your portfolio may be down. If you happen to be checking your portfolio at this time, these losses will bother you more than the fact that the market is up will excite you.

Decisions incited by loss aversion don’t align with your most important goals that are outlined in your Investment Policy Statement. And remember, if a decision doesn’t meet these criteria, then you shouldn’t act on it. Period.

Why Does it Matter to You?

It’s your right to be able to check your portfolio essentially on-demand. Part of your job as an investor is making sure that you’re satisfied with your results.

Our job is to help you overcome bad investor behavior, and make smarter financial decisions. To reach your full financial potential, you need to implement strategies that account for the human side of investing, and in turn, help make for a smoother ride. That’s why we created strategies designed to mitigate the impact volatility can have on your bottom line – something that traditional strategies often ignore.

Investing is uncomfortable – it’s one of the most unnatural things you will probably do in your life. You’re putting your wealth on the line, when putting your wealth on the line is something you wouldn’t inherently do. But you have to get comfortable with being uncomfortable. You have to realize that investing is a game won by checking and stressing less. Rather than struggling to fight the market and potentially causing your financial health to suffer from harmful side-effects, take a break from checking your portfolio until your advisor says it’s time for a review.

10 Critical Things to do With Your Money in Your 20s

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If you’d told me four years ago I’d be working as a marketing director for a wealth management firm, I would’ve laughed. In my dreams, I was in a big advertising agency in New York, LA, or Chicago. But, life has a funny way of working out – for the better, I believe. Not only do I truly love my job, but it gave me an advantage most people my age don’t have – knowing the critical things to do with your money in your 20s.

A Generation Lost?

As an almost-27-year-old, I can confidently say I’m learning the right way to build the foundation for a successful financial future. But unfortunately, many in our generation aren’t. And while we’ve been dubbed the generation who thinks they “know it all,” there’s a lot we don’t know. Especially when it comes to money.

And it’s not because we aren’t smart. It’s because there’s a lot of bad advice out there. Thanks, in large part, to a media over-saturated with talking financial heads, and an internet where you can drown yourself in financial information overload. Perhaps that why a lot of people our age struggle to find their footing when it comes to money. We don’t know where to find the right answers, let alone what the right answers even are, so financial matters fall to the bottom of the priority list. Or we put them off altogether, because we’re under the misleading impression that there’s always plenty of time to catch up.

Pile on top of that skyrocketing student debt, crippling credit card debt, absorbing all the other costs associated with “adulting,” the early stages of your financial life going from simple to complex, and you have the perfect financial storm. A storm that can cause you to easily fall into the traps, and start your financial journey on the completely wrong foot.

10 Critical Things to do With Your Money in Your 20s

When you hit your mid-20s, you start asking, “What do I do?” Do I save money, or pay off debt? When should I start investing? What kind of account should I invest in? How much money should I be saving? If I don’t start saving now, I can always catch up later, right? How do I organize and prioritize my goals? Heck, someone just tell me the first step to even take!

I did, and luckily, the right answers were just a short walk down the hall. And I want to share some of those answers with you, in the hopes they’ll help you on your way to building a solid financial foundation.

Here are 10 critical things to do with your money in your 20s:

1. Save your money. I can’t stress this enough – save your money people! Pay yourself first, every month, and you’ll be much further ahead than most. If you fail to save your money, everything else in your financial life has to work that much harder to pick up the slack. An ideal savings rate to aim for is 10% – 15%. And that’s not an outrageous number that can’t be reached – I know, because I’ve done it. I’ve saved as low as 10% to upwards of 19% of my income annually over the last few years.

2. Limit your credit card spending. There’s a good rule of thumb I’ve been told by the adivsors in our office – if you can’t pay for it in cash, you probably can’t afford it. We live in a right now society. But, waiting to buy something until you have the cash to afford it will always pay off more than impulsively spending money you don’t have. And if you do have credit cards, pay them off in full every month. I’ve limited myself to one credit card, and mentally set a monthly limit for myself that I don’t exceed. Anal? Maybe. But I have no credit card debt.

3. Don’t lock up your money. One of the biggest mistakes I see people our age make is dumping all their money into their 401k. You’re locking that money up, at a time in your life when you’re going to need as much liquid money as possible. When I first wanted to start investing, my advisor I work with in our company wouldn’t let me. That’s because you have to build up your liquid savings first. Then you should start investing. And in my case, I’m not investing in a qualified account – instead, my money is in a non-qualified account similar to the allocation of a 401k or IRA. So, if I need it, I can get it. 401ks aren’t bad – in fact, they’re an important tool for retirement. But you need to make sure you fill your buckets in the right order. Otherwise, you can get into trouble down the road and be tempted to take out loans on your 401k.

4. Protect yourself. This is probably the last thing on anyone’s mind when you’re in your 20s. It was definitely the last thing on my mind. But, this is the most ideal time in your life to protect yourself. Chances are, you’re never going to be as healthy as you are right now. And you never know what’s going to happen if you wait. For example, I put it off, and then was diagnosed with ulcerative colitis in 2014. As a result, I got a lower rating on my life insurance policy, which means increased premiums. But the point is I’ve protected myself, and when I have a family one day, they’ll be taken care of should something happen to me. You can easily lock in your insurability when you’re young with an inexpensive term life insurance policy.

5. Fill up your short-term bucket. In the world of finance, your money is generally divided between three buckets – short-term, intermediate, and long-term. Your short-term bucket is your cold hard, liquid cash that sits in your savings account at the bank. Fill up this bucket first, before any other bucket. You should always have 3-6 months of liquid cash reserves to get you through the hiccups when life happens – like when I had to pay $600 to put all new tires on my car this past spring. Or had to spend $1,500 on new furniture when I moved. And the great thing is since I have savings, I can pay for things like this without using my credit card.

6. Eliminate bad debt. Bad debt is high interest, short-term debt – like credit card debt. If you have it, make paying it off a top priority. Carrying debt directly affects your ability to save and invest. And paying out interest rates of 15% and higher is crazy! Think if the money you invested made 15% – we’d all be a lot happier. You also shouldn’t be investing when you have high amounts of short-term debt. Chances are, the interest you’re making isn’t more than the interest you’re paying out. Note – if your short-term bucket is full, you shouldn’t have to rack up credit card debt.

7. Prioritize your financial goals. Nothing with money happens overnight. You have to understand it’s a journey, and it always will be. Write down your top financial goals at this moment in time. Then determine which bucket they belong in – short-term, intermediate, or long-term. Once you do this, then you can start formulating an action plan to achieve that goal, and start deploying your money appropriately. It’s helpful to talk through your goals with someone who’s already achieved them, like your parents.

8. Start investing. The earlier you can start investing, the better. The longer you wait, the less time your money has to grow. But remember, do it the right way. Eliminate short-term debt, build up your liquid savings, and then start exploring the idea of investing. You may want to think twice about putting your money in a qualified account right now. Keeping it in a non-qualified account gives you access to that near-liquid money, should you need it. Then, you can always put it into a qualified account down the road once you’re more settled. You should also consider talking to a professional investment advisor before you invest. Not just going out there and trying to figure it out for yourself. Robo-platforms have made investing easy and convenient as well.

9. Sign-up for a software that helps you manage your financial life. I’m talking about a one-stop software that shows you every piece of your financial puzzle. Not a robo-investing platform that only focuses on one area of your financial life. Finances are complex, it can be hard to understand what you have and how it all works together. That’s why aggregating everything into an organized, easy to understand format is crucial in helping you make smarter decisions. We offer JB Wealth Builder to our clients, which shows them their current financial position in real-time. Another example of a software like this would be Hello Wallet.

10. Consider hiring a financial advisor. I would’ve never known the right way to build my financial foundation if I didn’t work at Jarred Bunch. Sure, I could’ve asked my parents for help, but even they would be limited in the advice they could give. To navigate the complex world of finance and investing, and to ensure you build a solid foundation, you’ll probably need the help of a professional advisor. Talk to your parents and friends about who they work with – you want to make sure this is someone you trust. Also, make sure they are truly an advisor, not a broker. You can learn more about the difference here.

Why Does it Matter to You?

Your 20s are an important time in your financial life. It’s the stage that sparks your financial growth, and sets the pace for the rest of your life. Getting it wrong now can have detrimental effects down the road. The tips discussed here are a good way to help you start your journey in the right direction.

The 5 Most Revealing Questions to Ask Before Hiring a Financial Advisor

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Hiring a financial advisor can be stressful. You’re trusting someone to help you accomplish one of – if not THE – most important things in your life. That’s why you need the leg up. And the best way to do that is to know what matters, what doesn’t, and the critical questions to ask a financial advisor before hiring them.

Seeing Through the Smoke and Mirrors

The institutions and Wall Street broker-dealers have spent the last century building their grandeur. And they want to hold onto that power, forever. As consumers have gotten smarter, the traditional industry has had to do a lot to cloud your vision from what’s really going on.

For example, a lot of people don’t even know what their investments are truly costing them. And costs matter – a lot. They directly impact your bottom line. When investing, you can incur fees and other costs at almost every turn, from the advisor fee, to the institution’s fee, to the cost of the funds in your portfolio (your expense ratio), taxes, and more. And unless you explicitly go digging, most of these costs will remain hidden from you.

They also try to saturate your brain with a lot of fancy terminology to describe those of us qualified to offer financial advice – broker, CFP, CFA, CMT, advisor, investment manager, financial planner, portfolio manager, and so on. Which combination of the alphabet do you choose? While you should do some basic investing research before hiring a financial advisor, I say ignore the words and letters. Instead, find out what this person actually does and how they conduct business. That’s what matters more.

The next few paragraphs will give you the most important bit of information you should consider when hiring a financial advisor – and that’s knowing the difference between an advisor and a broker.

Advisor vs. Broker: Who Has Your Best Interest at Heart?

It’s critical that you understand what I’m about to say – Most people 1) don’t realize that most advisors aren’t fiduciaries, and 2) don’t realize that they’re not actually working with an “advisor.”

Before the 90s, there used to be a known distinction between advisors and brokers. In fact, there’s still a hard distinction between the two – it’s just not known to most people. It was in the 90s when the traditional industry stopped calling their salespeople brokers, and started calling them advisors. Ever since then, they’ve done a good job keeping the catch-all “advisor” category alive and well.

The biggest distinction is that advisors are fiduciaries. This means they represent you, and are legally obligated to work in your best interest. No one else’s. They typically charge a flat fee of assets you have under their management, and that is how they’re compensated. Basically, they have zero to no conflicts of interest, because their loyalty lies specifically with you.

On the other hand, brokers are not fiduciaries. They work for an investment firm (commonly known as a broker-dealer), and are representatives of that broker-dealer. Not you, the client. Brokers are obligated to sell the products offered by that broker-dealer. When it comes to products, a broker’s standard is “suitability.” This means if an investment is suitable, but not necessarily the best or conflict-free, they can still sell it to you. They’re paid on commissions from the broker-dealer they represent, not by you. The need to sell among brokers is high.

The 5 Most Revealing Questions to Ask a Financial Advisor Before Hiring Them

There are numerous questions, theories, and strategies for picking an investment advisor. But I believe it really comes down to asking a few core questions that get to the root of what matters most – what this person stands for.

Here are what I believe to be the five most revealing questions to ask before hiring a financial advisor. Take these questions with you when you conduct your interviews:

1. Are you an independent advisor or a broker? Your first question should get to the root of whose best interests they represent – yours, or an institution’s. I started Jarred Bunch because I was passionate about making a difference in people’s lives – so much so, that I walked away from a cushy, six-figure job in corporate America to strike out on my own. I remember being so excited about building a company that was going to change the industry. On the day my business cards arrived, I looked on the back and saw in writing, “Scott Jarred is a Registered Representative of so-and-so big Wall Street broker-dealer.” This was the opposite of who I am, the opposite of what Jarred Bunch stands for. I couldn’t make money work for people – I was still working for and being controlled by the man. So, we broke free from the chains, and became an independent Registered Investment Advisory firm (RIA).

2. Who pays you? If they’re truly an advisor, their answer should be something like, “You pay me.” They should clearly lay out how they charge their fees, and disclose all costs associated with doing business. Down the road, if you decide to work with them, you should also ask for complete transparency on portfolio costs. Brokers, on the other hand, are paid commissions by the broker-dealer they represent. In addition to the conflicts of interest this can create, it can also cause them to jack up your advisor fees – they have to make money after the broker-dealer takes their cut off the top.

3. Are you legally obligated to act in my best interest? The answer to this must be yes. All the time, no exceptions. If they’re a true advisor, their answer will be yes. This is their duty as a fiduciary – they are legally bound to act in and offer solutions that represent your best interests. Brokers are legally bound by contracts with their broker-dealer, and must act in the best interests of that broker-dealer. Yet another red flag that they’re not a true fiduciary.

4. What is your firm’s history and current professional standing? In other words, you can ask to see a copy of their Form ADV. This is a registration document that advisors must submit to the SEC and to state securities authorities. Form ADV is divided into two parts. The first part discloses specific information about the Registered Investment Advisory firm that is important to regulators. This includes things like name, number of employees, nature of the business and so on. The second part acts as a disclosure document, and includes information on fees, any conflicts of interest that may be present, any disciplinary actions, if they act as a broker-dealer and more.

5. What do you think you can help me accomplish in the next three years that would make my life significantly better? During the interview, take the opportunity to outline your top priorities, and give the high-level overview of what reaching your full financial potential looks like to you. Note that you should be doing most of the talking when you get to this point. The advisor’s job should be to listen, and hear what value you’re looking for them to add to your life. Then ask them what specific steps they can take to help you get there – so that when you guys meet three years from now, you’ll feel like the time you’ve invested in this relationship has been worthwhile. Not only does it give you a glimpse into how well the advisor aligns with your values, but also gives you a clue as to whether they view the world with an abundance or scarcity mindset.

Why Does It Matter to You?

Two of the most important people in your life are your doctor and your financial advisor. Cliché, I know, but something that I believe.

In fact, think about hiring a financial advisor in terms of what made you pick your doctor. Would you have chosen them if they told you their loyalty lied with anyone but you, the patient? If they said that they have to represent the best interests of an outside group, not you? If they only offered you one treatment option, regardless of whether it was the best thing for you, because that’s what the group who controls them allows?

Heck no. So, why then, would you consider hiring a financial advisor, one of the most important people in your life, who conducts business this way?

That’s why it’s so important that above all, you ensure you’re working with a true advisor – not a broker using the traditional industry’s smoke and mirrors to make you think they’re an advisor. This means that you’ll have a fiduciary on your side – someone who’s bound to the same principle of “First, do no harm,” as your doctor. You’ll have hired someone who goes to work for you every day, and who you can count on to educate, guide and counsel you toward reaching your full financial potential. While it will be their job to listen to what it is you want, it’s their responsibility to protect your financial well-being. If you ask them to do something they believe would threaten your well-being, it’s their job to explain why you shouldn’t. Just like your doctor would do if you asked them to perform an unnecessary or risky procedure.

In the end, your decision for hiring a financial advisor comes down to what you value in a person who is responsible for playing this role in your life. After all, this is your financial life, no one else’s. But just remember, you get one shot at your financial journey. And failure is not option. So, I would caution you to hire wisely. I promise, if you find the right advisor, you’ll never want to leave them, because they’ll help you live the life you want.