Is Paying a Financial Advisor Worth It?

The Benefit Of Hiring A Financial Advisor?

What if I told you that using the investment management services of a financial advisor will make you $2.6 million richer? And this number doesn’t include the benefits of financial planning or rely on magical investment returns that trounce the market. 

An exaggeration? Unrealistic? It depends on your specific situation. Read on, and I’ll tell you how I arrived at this number below, and you can decide for yourself if it makes sense or not.

If you are in the mood to entertain some of my goofiness, please read this post straight through. If you would like to skip directly to the meat of this post, jump down to the section titled: The Worth of a Financial Advisor Trust me. I won’t be offended if you jump ahead.

The Most Horrifying Phrase a Financial Advisor Will Ever Hear

It was a stormy night, and cold rain pelted my office window. The streets of Pittsburgh were dark and empty. All souls, with any sense, had sought dry, warm cover.  I decided, after a long day of work, it was time to brave the storm and make my way home where a roaring fire and two fingers of whiskey awaited.Financial Advisor Office

I grabbed my fedora, trenchcoat, and umbrella from an antique, wooden stand behind my desk. As I turned to leave, there was a loud crack of thunder and a flash of lightning that bathed my office in a bright glow. A serious-looking woman appeared before me with a large briefcase. “I’m in need of comprehensive financial planning,” she said.

“You’ve come to the right place,” I responded, admiring her financial prudence.

She shifted nervously from one leg to the other and hesitantly added, “However, my husband says ‘It’s not worth paying a financial advisor.’” A bolt of lightning struck close by, and the sound of thunder ripped through the office. A flood of light crashed through the window and illuminated my horrified face.   

Thanks for sitting through that. I’ve always wanted to write a great-American detective novel. And after looking at a calendar that’s pretty full of financial advisor stuff, I realize it’s not going to happen anytime soon. Now on to the good stuff.

The Worth of a Financial Advisor

Most work a comprehensive financial advisor performs can be assigned to one of two buckets: investment management and financial planning.

This article will cover the first bucket – investment management.

For much of the data in this article, I lean heavily on research performed by Vanguard and published in a whitepaper titled: “Putting a value on your value: Quantifying Vanguard Advisor’s Alpha®. “ Vanguard’s research concludes that a financial advisor can add approximately 3% to net returns for clients, but “…the actual amount of value added may vary significantly, depending on the client’s circumstances.” I dive into the details below.  

Investment Management

It’s no secret you can deposit your retirement savings at Vanguard, a firm that offers inexpensive mutual funds and exchange-traded funds (ETFs). If you do it yourself, you can avoid an advisor’s management fee, which is usually about 1%. Score! That’s a significant savings!

Less well known is that Vanguard has done research measuring the value of a financial advisor’s advice. The benefit of using an advisor? Approximately 3% a year! Even after taking into account an advisor’s 1% fee, the difference is significant.

Using a $500,000 portfolio to illustrate, the 3% benefit of using an advisor equals $15,000/year, or $10,000/year if your advisor charges a 1% fee. And this is not a one-time gain. On average, it occurs every year and compounds over time.

I put together an example to illustrate the benefit of using an advisor below. Before I continue, I feel like I need to put on a lawyer hat. No, I am not a lawyer.

The following is an example and not intended to apply directly to your situation. It is simplified to illustrate a valuable point. Please perform your own calculations, which will be specific to your individual situation. You can find a straight-forward investment calculator at omnicalculator.com.  Or, better yet, ask a financial advisor to do a personal, detailed analysis. If you’d like to dig into the exact numbers used to calculate the following returns, please see the appendix at the end of this article.

There are many moving parts in this calculation, and I attempted to use fair assumptions. These numbers may be considered aggressive or conservative, depending on individual scenarios. I am also assuming Vanguard’s research is accurate and reliable. So, let’s get on with it!

How valuable is using a financial advisor according to my calculations? A $500,000 portfolio that consists of 60% equity and 40% will be ahead by over $2.6 million over a period of 35 years.The Benefit Of Hiring A Financial Advisor?

How is this possible? In my example (again, please see the appendix for specifics), I have the financial advisor managed portfolio returning an extra 2% per year. The 3% benefit of using an advisor is reduced to 2% to cover the average advisor’s fee.

We know that Vanguard’s research states that financial advisors help the average investor earn returns, which are approximately 3% higher than if they manage their own investments. But where does this additional return come from?

Behavioral Coaching

The most significant benefit of working with a financial advisor is behavioral coaching. Vanguard indicates an advisor adds 1.5% of return by helping clients through the emotional rollercoaster that is the stock and bond market.

When the markets are seemingly up every day, and discount brokerage commercials are screaming at you to put a second mortgage on your home and invest aggressively so that you can live the Yacht Life, your advisor will be there to remind you of your long-term plans.

The Yacht Life

When the market has dropped 20%, and the financial media is predicting the end of times, it’s difficult to ignore the nausea you feel each time you look at your brokerage statement. When CNBC covers half your TV screen with the bright red emergency of the day, and your instincts are screaming at you to sell, your advisor will be there to remind you of your long-term plans and reduce the panic you’re feeling.

I know what you’re saying to yourself: “This emotional investor is not me!” However, it very likely is, and studies have shown it. It’s easy to look at a financial plan in times of calm and rationalize a 20% drop in your portfolio as perfectly acceptable. It is much harder to stick with your long-term financial plan when the market is down significantly, the economy seems to be worsening, and every investment pundit with access to the media is screaming – “There’s no end in sight!”

Spending Strategy

You may be thinking: “Saving and investing is the hard part. I think I’m pretty capable of spending without any help.” Surprisingly, a spending strategy can be complicated, and clients who use a financial advisor can generate an extra return of up to 1.1% a year on average.

Clients with a mix of taxable and tax-advantaged accounts, who are in a high tax bracket, have the most to gain. But just because you’re not spending money yet, doesn’t mean an advisor can’t help you with a spending strategy. Setting up both taxable and tax-advantaged accounts in preparation for retirement will give you the flexibility to keep your tax rate level when you start withdrawing funds. It will also help you avoid income spikes that could launch you into one of the top tax brackets.

Asset Location

The type of account you use to hold different investments is important and, if done correctly, can generate an extra 0.75% of return per year. Tax-efficient investments such as passive equity ETFs should be held in taxable accounts. Less efficient investments that aggressively produce income, like most bonds, should often be held in a tax-advantaged account. The expected holding period will also influence the decision of which type of account to use. Again, clients in a high tax bracket with a mix of taxable and tax-advantaged accounts have the most to gain.

Cost-Effective Implementation

Vanguard research measures the potential benefit of moving toward low-cost funds to be 0.34% in return per year. This advisor benefit may be viewed as easily replicable by clients who are investment-savvy and don’t mind taking the time to research investment options. Truthfully, constructing an initial, low-cost portfolio is not difficult if you have the investment knowledge and patience to complete the task. 

However, the difficult part is the ongoing monitoring of the initial portfolio once it is established. Existing funds may have a change in strategy, a change in management, or not perform well when compared to their benchmark. Any of these changes may make it necessary to find a replacement fund. Even funds with passive strategies must be monitored to make sure the original investment thesis remains in place.

There have been over a thousand new ETFs created in the last five years. New funds that hit the market may have lower fees or execute a desired strategy better than an existing holding. This ongoing monitoring is time-consuming and can be tedious for people not interested in the nuance of investing.

RebalancingRebalancing

Vanguard determined that, on average, portfolio rebalancing resulted in a benefit of 0.26% per year. Rebalancing keeps the original asset allocation steady by adding or trimming holdings periodically.

Researchers compared two portfolios that had similar risk characteristics. One was regularly rebalanced, and the other was not. The rebalanced portfolio had higher returns.

Even more importantly, rebalancing is a risk-reduction tool. When one asset class outperforms, it will grow to a larger weighting in the portfolio. Risk can increase beyond the original expectations if left unchecked.

Reality

Does an advisor really deliver 2% in additional returns after fees? Possibly, but real life is messy, and every situation is different. The key point is, even if we attribute an increased return of only 0.5% to an advisor, the benefit over a 35-year time frame can be in the hundreds of thousands of dollars. Plus, by handing off the time-consuming task of managing your investment portfolio you’ll have more time to do the things you love, such as spending time with family, traveling, or writing that great-American detective novel.

Appendix:

Here are the numbers I used:

Present Value (of the portfolio): $500,000

Expected Return using an advisor: 7.1%. The average return of a 60% equity / 40% bond portfolio over the last 92 years has been 8.6%. I subtract 1% for advisor fees and .5% for mutual fund/ETF fees.

Expected Return without an advisor: 5.1%. The average return of a 60% equity / 40% bond portfolio over the last 92 years has been 8.6%. I subtract 3% to account for the underperformance calculated by Vanguard research and .5% for mutual fund/ETF fees.

Period: 35 years

Compound Frequency – yearly

The value of $500,000 becomes $5,515,711 at 7.1%.

The value of $500,000 becomes $ 2,851,445 at 5.1%.

*These final portfolio values are not adjusted for inflation.

Assumptions:

A 60/40 portfolio will average the same returns in the future as the past 92 years.

The client does not reduce their equity holdings as they approach or move through retirement. A client might want to invest more conservatively as they age.

The advisor fee is a constant 1%, whereas, in reality, most advisors will reduce their fee as assets grow and pass certain thresholds.

For simplicity, taxes are not included.

The benefit of using a financial advisor is illustrated in this example as a smooth 3% per year. In reality, this benefit is choppy, and timing is unpredictable.


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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

     

    Retirement Spending and How Much Uber Drivers Make in Your City – Links

    Forest PathBridge

    Retirement:

    Spending before and after retirement can be filled with apprehension. However, the best way to relieve yourself of this dread is to plan ahead and know what is likely to be important and what isn’t. If there was only someone who could help you with this stuff…hmm. (Shameless plug.)  


    What you should and shouldn’t spend money on in retirement – (next avenue)

    There is typically an initial three-to-five-year period of retirement “jubilation,” where many retirees overspend, often with more frequent travel as they start checking off their “bucket list” goals, Jenkin said. That’s usually followed by a longer period of “stabilization” — when spending normalizes for the next decade or so. Jenkin calls the last spending period the “five-mile radius,” when older retirees mostly stay closer to home and their spending (except for health care) typically decreases.


    Expenses that go away in retirement – (Curtis Financial Planning)

    Ann felt fortunate about being able to retire at 60 after working 10-hour days for many years. However, as the date approached last year, she felt apprehension about ending her salary income. She knew that a portion of her daily spending while working was mostly for convenience, but she never took the time to figure out how much. 


    It’s never too early to start a Roth IRA even if you’re a teenager – (the free financial advisor)


    The Gig Economy

    How much do Uber drivers make in your city? – (Small Business Trends)

    If there is one company that symbolizes the gig economy, it is Uber. The issues the company has with its drivers and how much they make highlights the growing pains of the gig economy. Speaking of how much they make, a new report from Zippia looks at where in the U.S. Uber drivers make the most and least money.

    Author Kathy Morris says you can make a good wage in some cities, but in others, you will be better of working at McDonald’s. 


    Credit Cards

    January is a good time to review your credit card choices – (Frugal Travel Guy)

    I used to carry the Chase Sapphire Reserve card for dining and travel at 3X with a value in my mind of 1.5 cents per point. I recently product changed back down to the Sapphire Preferred card at 2X dining as I have enough cards with travel credits and at a net cost of $150 when you take away the $300 travel credit, I think I’m getting more out the Gold card.


    Travel

    January cold often gets me dreaming about the beach: the best places to stay in Seychelles – (Wild Junket)

    Empty beaches, spearmint blue water, pristine jungles and lost world islands: Seychelles really is a fabled paradise that lives up to its name. Picture-perfect beaches abound, backed by lush green hills, swaying palm trees and larger-than-life boulders. Centuries-old giant tortoises roam freely, while elegant birds fly overhead.

    To help you plan your perfect Seychelles itinerary, I am sharing my tips on where to stay in Seychelles and the best Seychelles hotels on each island.


    I’m not sure if this should go under investing, retirement, or travel – buying a home in Italy for $1 – (CNN)

    Bisaccia, a picturesque destination in Italy’s southern Campania region, is putting 90 dilapidated buildings on the market for one euro, joining other places across Italy trying to save dying communities by incentivizing people to move there.


    Would you like to receive the PathBridge Financial newsletter? You’ll receive about 4 emails a month. My promise, only the best stuff and never any spam.

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is a Pittsburgh, PA fee-only financial advisor. He is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are within 15 years of retirement.

    I’m a Financial Advisor and I Love Credit Cards!

    Why It Makes Sense to Use Credit Cards Wisely

    The poor, lowly credit card. Demonized by money gurus everywhere. Is it possible that credit cards aren’t nearly as bad as they are made out to be?

    I’m a financial advisor, and I love credit cards! Yes, I said it. They can be a great tool if used wisely. They can also be a nightmare if used improperly, but that can be said about most financial instruments.

    Let’s jump into the benefits:

    No ATM Fees

    The average withdrawal from an ATM in the U.S., according to the Federal Reserve Bank of Boston, is $103, and the average ATM withdrawal fee in 2019 was $4.72 per Bankrate.com. That’s a 4.6% tax on consumers every time they access their hard-earned money. If you need a cash withdrawal, try to use an ATM that is affiliated with your bank, sometimes easier said than done when you need cash right away. Or, better yet, open an account that refunds any fees charged for using a third-party money machine.

    Admittedly, credit cards come with their own set of fees/interest charges to avoid. However, this shouldn’t be difficult to do as long as you research the right card for you and are diligent in paying it off each month.

    Stolen or Lost

    Have you ever been robbed at gunpoint? I have! It’s loads of fun (sarcasm). Shortly after college, while getting into my car after the evening shift at a local department store, I had a gun pushed into my ribs. The only thing I could think of immediately after the incident – “That was a very big gun!”

    I had cash and credit cards in my wallet that night — the cash, gone forever. The credit cards, I quickly canceled them. Actually, I got the cash back because the robber was later caught, but that kind of ruins the moral of the story. If you’re ever robbed, you’re likely never going to see your cash again.

    A funny side note is this robbery almost resulted in me being in the middle of an all-out, courtroom brawl. However, I’ll save that story for another day.

    Almost everyone has lost money at some point in their lives. The wallet that fell out of your pocket, the purse you left on a table. The money you blew on the ponies…actually, that’s a different type of loss outside the scope of this article.

    Would you rather lose cash or credit cards? Credit cards can be canceled and replaced; cash cannot.

    Credit Score

    Credit cards can help you increase your credit score as long as payments are made on a timely basis. Our good friend, the FICO score, is used by institutions who would like to extend you credit. 35% of the FICO score is based on your payment history. Pay off your credit card on time, and your FICO score goes up.

    A high FICO score will make it more likely financial institutions will give you a loan. It can also lower the interest rate you are offered. Even most people who avoid debt like the plague have a mortgage or car loan at some point in their lives. The savings can be substantial if you can get a lower interest rate on these loans.  

    Emergencies

    Oceanfront View in Cabo
    Four Seasons Resort Los Cabos at Costa Palmas

    Credit cards can be a comfort when real emergencies occur. What is not a real emergency? – “I’m having a nervous breakdown at work and a week-long vacation in an Ocean Front Executive Suite at the Four Seasons Cabo sounds good.” Nothing against this type of spending if you can fit it into your budget. It actually looks quite lovely! However, if you’re going to have to run a balance on your credit card, it’s not a good idea.

    To clarify further:

    Emergency: Your car was sideswiped by a Tesla driver who fell asleep at the wheel while autonomously driving down the highway, and you have to cover the deductible on your vehicle in order to drive to work to support your three kids.

    Not an Emergency: You will look “tasty” in a new, apple-red convertible.

    If you establish an emergency fund early in your career, hopefully, an emergency charge to your credit card is never needed. It’s a nice fallback, however, in times of great need. A thirty-day reprieve while waiting on a paycheck might be precisely what you need. You should still do whatever you can to pay off the entire balance each month to avoid paying interest.

    Rewards

    Now it gets good. What type of rewards make the most sense in your life? Does cashback sound good? How about airline miles? Do you dine out frequently? Where do you spend the majority of your money? Make sure your credit card is best suited for the type of rewards you want to receive by doing research at sites such as nerdwallet or The Points Guy.

    Many cards have no annual fee. For those that do have a yearly fee, make sure the rewards are good enough to cover it. Many credit card companies will waive the first year’s annual fee, so keep in mind you will automatically be charged in the future.

    Credit card reward programs are constantly changing, so please double-check the specifics of the cards mentioned below. Some of the credit cards I hold:

    The Discover Card offers unlimited 1% cashback on your purchases. 1% isn’t a tremendous reward, but they also offer 5% cashback on specific categories that change every quarter. In the last three months of this year, the 5% cashback applies when making purchases at Amazon.com, Target.com, and Walmart.com. Do you think you’ll be doing some holiday shopping with any of these companies? Yes, that’s what I thought. The best thing about the Discover Card, there’s no annual fee.

    The United Explorer MileagePlus card has a yearly fee of $95. But it makes a lot of sense in my wallet. I love to travel, and this card has some nice perks. There’s a generous sign-up bonus of 40,000 miles, which can be leveraged into a couple of free domestic flights. You will also receive one mile per dollar spent and two miles when using the card for dining, hotels, or with United Airlines.

    There are additional perks as well, including a reimbursement for money spent on TSA-Precheck and priority boarding. You can relax in a United Club twice a year, which is a great place to load up on food and drink before boarding a plane where you’re lucky to have a bag of peanuts thrown at you. And then there’s my favorite perk of all, a waiver of the checked-bag fee.

    A little about me and the checked-bag fee. There are few things in this world I hate more than paying to check a bag. I will do nearly anything I can to avoid paying it, including wearing an entire suitcase full of clothing to the point where I am so layered I look like Joey in the episode of Friends where he puts on all of Chandler’s clothing

    I fly on non-business trips at least six times a year. Most airlines charge approximately $30 per flight-leg for the privilege of chucking your bag into the underside of the airplane. I am always flying out of Pittsburgh, and, unfortunately, most trips involve at least one layover. That is six trips a year, times four flight legs per trip (I have to return home), times $30 = $720 in checked bag fees I can avoid paying. And if you’re flying with a companion, their first bag is free as well, so double that savings!

    As I mentioned earlier, do your research and find the credit card that makes the most sense for you. If a card has an annual fee, make sure the benefits you receive outweigh this charge. Also, try not to fall into the trap of opening up new accounts each year and piling up a wallet-full of credit cards you never use. Close accounts if you’ve stopped using them.

    No Change!

    This point may seem silly when compared to the other benefits in this article, but I can’t imagine going back to using cash all of the time and walking around with a pocket full of change. I cringe thinking of the $19.03 purchase where I hand the cashier a crisp, new $20 bill only to receive a handful of coins. And don’t get me started on pennies!

    There’s also the random container in the back of your closet where you dump your change. It could be an old Tupperware container, a shoebox, or your 1980’s-era, “I Shot J.R.” mug. I Shot J.R. MugRegardless of the receptacle, it will become full one day, and to empty it, you’ll have to cart it off to a bank or find a Coinstar kiosk. Then this evil cycle begins again.

    Can you tell I have a personal beef with coins? A credit card can put a stop to this never-ending cycle.

    People Who Use Credit Cards Spend More Than People Who Use Cash

    Some studies show consumers spend more money when using credit cards as compared to using cash. Two factors seem to drive this behavior: pain and convenience. Pain is associated with handing over paper money; it hurts a little bit. On the other end of the spectrum is the simplicity of using a credit card. It’s convenient and causes little pain.

    A quick swipe of a credit card and you’re out the door. It’s almost like it wasn’t real money. No counting out bills and watching the cashier pull them from your greasy, little hands. The ease of this transaction will lead you to the poor house, right? Better get used to it.

    You know what is more convenient than swiping a credit card? Clicking a mouse or waving your iPhone in front of a scanner, and it’s the future. Like it or not, transactions are moving online. It’s only getting easier to spend money. The crutch of using cash to make transactions less convenient and more painful is just not practical.

    So, unless you can program a virtual hand to reach out from your computer or smartphone and slap you upside the head every time you hit the Amazon 1-Click button, you’re going to have to get used to a digital world of transactions with no pain. But there may be a solution.

    Want to feel some pain to curb spending? Start a budget. A nice benefit of using credit cards is most of your spending is recorded in one place.

    At the end of the month, sit down with your credit card statement and go through your spending. Put a picture of your child, spouse, or other loved one nearby where you can see it clearly.

    Did you spend more than your budget allows while stocking your wine cellar instead of funding your daughter’s college savings plan? Take a look at the picture. This is the person you let down, who depends on you to save for their future. Feel pain? Something unpleasant is happening, because studies say you will save more for the future if you do this.

    If you make the switch from using cash to credit cards, monitor the change in your spending. Has it climbed dramatically? Are you finding it difficult to pay off every month? If so, you may not have the right mentality to use credit cards wisely.

    Summary

    Credit cards can be an excellent financial tool if used properly, and the benefits over cash are numerous. In today’s digital world, it has become simple to spend money conveniently and without pain. Strictly using cash to force fiscal discipline is impractical. A better way to attack responsible spending is by putting together a budget and sticking to it. Best of all, if you play your cards right (pun intended), you won’t have to pay those soul-sucking baggage fees!


    Would you like to receive the PathBridge Financial newsletter? You’ll receive about 4 emails a month. My promise, only the best stuff and never any spam.

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Martin Luther King, Jr., Sins that Kill Retirement and the Best Travel Books of All Time – Links

    Winter Bridge

    Martin Luther King, Jr.:

    Martin Luther King, Jr. doesn’t often come to mind when our thoughts drift toward financial planning.  But with MLK Day less than a week away, Ebony has an article highlighting the economic component of his message. It’s good.

    Five solid financial lessons derived from the message of a man (much) better know for civil rights – (Ebony)

    We’ll fight for all sorts of things – just turn on The Real Housewives of Atlanta to see crazy fights over a bunch of nothing. But how come more of us aren’t out there fighting to teach our kids to be financially literate…


    Retirement:

    Five important factors to consider before you make that move in your golden years – (Motley Fool)

    … when you’re considering where to set up your home base during your golden years, there’s a lot to think about beyond just where you think it might be fun to live. In fact, there are five key things to consider when you choose where to locate yourself for the next phase of your life. 


    12 deadly sins that may kill or seriously maim your retirement – (MarketWatch)

    I firmly believe that, if you eradicate these 12 sins from your financial life, you’ll have a better-performing portfolio.


    Your big social security decision – when to take it? – (Forbes)

    When it comes to retirement planning, you may have heard a lot about the benefits of tax-advantaged retirement accounts, how to choose investments, and maybe some of the details of any pension plans that you’re fortunate enough to have. But what about Social Security? After all, it provides the majority of retirement income for many Americans.

    There’s really only one big decision you have to make about Social Security and that’s when to take it.


    Nearing retirement? Now might be a good time to ask the question: Do I still need life insurance? – (Sightings Over Sixty)

    Last week I went to the dentist, which in a perverse sort of way got me thinking about insurance — maybe because getting insurance is about as much fun as going to the dentist. But like going to the dentist, it’s something we need to do.


    Retiring Abroad:

    5 things you should know before you drop it all and retire in another country – (CNBC)

    Moving abroad may be the ultimate in using your brain in new ways. “We’ve always been pretty resourceful but when you put those skills to the test it’s comforting to know you can do it,” Cynthia Staton said.

    The most surprising thing about their move was how quickly the Statons found themselves thriving. “We embraced the change and felt like it was a great decision,” she said.


    Travel:

    “To the most beautiful moment in life. Better than the deed. Better than the memory. The moment of… anticipation.” – Jacques, the Simpsons

    Jacques was talking about something else entirely, but I firmly believe that planning for a trip is an exciting part of the overall experience. A few months before any trip, I try to locate a good novel or history about my destination. Am I the only one? If not, here’s an excellent place to start before your next vacation. Oh, and if you’re going to the Caribbean during this cold winter stretch, may I recommend Don’t Stop the Carnival?


    A list of the greatest travel books of all time – (Conde Nast Traveler)

    There are an astounding number of travel books out there. How to choose the best of the best? Back in 2007, Traveler enlisted a literary all-star jury that included Monica Ali, Vikram Chandra, Jared Diamond, Jennifer Egan, John McPhee, Francine Prose, Paul Theroux, Gore Vidal, and more to create a comprehensive list of the greatest travel books of all time. We’ve since updated the list with Traveler editors’ picks, some of which were published in the last decade and have already made their mark.


    Would you like to receive the PathBridge Financial newsletter? You’ll receive about 4 emails a month. My promise, only the best stuff and never any spam.

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is a Pittsburgh, PA fee-only financial advisor. He is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are within 15 years of retirement.

    A Financial Advisor Looks at 50

    Birthday Cake for 50 year old

    At the beginning of Jimmy Buffett’s book, A Pirate Looks at Fifty, he summarizes his life in four paragraphs of approximately 400 words. A combination of love, work, failures, and success. It is powerful.

    I encourage anyone reaching the half-century mark to take a quiet evening and pour yourself a drink. Find a comfortable chair and reflect on the past fifty years of your life. There will be pain, joy, and laughter.

    After going through this exercise myself, I found that my first fifty years were remarkably similar to Jimmy’s. Minus the best-selling books, award-winning music, and entrepreneurial super-stardom. But I did win a recreational kickball championship in my forties, so I’ve got that going for me.

    This article is not about the past, however. It’s about planning for the future. After the reminiscing, it’s time to look forward.

    Hitting the Big Five-Oh!

    I’m writing this post because I just celebrated my fiftieth birthday. I managed to make it through the day without crying, but I can’t understand how the time went so quickly. Fifty is here, and it shows. I’ve discovered that when I now go to a restaurant with a large clientele of twenty and thirty-year-olds, I am escorted past the open tables near the front window. I am seated at a dark table in the back, near the bathroom, presumably, so I don’t scare off the young, desirable crowds passing by.

    Nervously, I had dreams about the morning of my fiftieth birthday. I would wake to a loud knock at the door and stagger out of bed. I’d groggily answer the door to be greeted by a smiling AARP representative holding a colonoscopy prep-kit. Welcome to fifty and all the wonderful, new experiences it brings!

    The morning of my fiftieth birthday came to pass with much less excitement than anticipated, however. Unfortunately, I did let out an old-man groan as I crawled out of bed that was decidedly louder than ever before.

    Happy at Fifty? You Might Be Alone

    According to leading happiness studies, the magic age of fifty is close to the most miserable point in our lives. (See chart below.) Mid-life can bring intense pressure when there is a delicate balancing act between the needs of our aging parents and the needs of children, who are messily turning into adults themselves. The dreams of youth are slipping away as there is a realization that time is running out to achieve our childhood dreams. Reaching that workplace mountaintop may now be an unrealistic goal.The Shape of Happiness

    Depressed? Don’t be. There is hope! Happiness rebounds sharply after mid-life until peaking around eighty years old. Who knew we’d all be deliriously happy in our twilight years?

    How can you arrive at this blissful nirvana in good financial shape? Start planning now. It’s never too early, but if you’re fifty like me, it’s time to plan with some urgency.

    Retirement Savings

    Fifty is just a number, but don’t tell that to Uncle Sam. He hands out some tremendously valuable gifts, unlike that deadbeat uncle who gave you expired coupons for Perkins on your big day. The government allows you to put extra money into retirement accounts in the year of your fiftieth birthday. Catch-up contributions can be sizeable. In 2020, you can add an additional $6,500 to your 401k, 403b, and 457 plans. Traditional and Roth IRAs allow for an additional $1,000 catch-up, and you can increase Simple IRA contributions by $3,000 more.

    These catch-up contributions come at a good time. There are often sizeable expenses that disappear around fifty. Extra savings can be deposited into retirement accounts as children finish college and move out on their own. Additionally, if you’ve sent off the final payment on your home or car, apply the extra cash to your retirement accounts and take advantage of these catch-up contributions.

    Asset Allocation

    Your asset allocation decision is very personal. Not only should you take into consideration your future goals and time horizon, but your tolerance for risk is also vitally important.

    Make sure your asset allocation isn’t too conservative. There is an old rule of thumb that says to determine your stock allocation subtract your age from 100, but this can often result in a weighting that is not aggressive enough given longevity trends.

    A fifty-year-old man or woman can expect to live into their eighties according to the Social Security Administration’s life expectancy tables. But you won’t get the chance to be deliriously happy with the other eighty-year-olds if you haven’t saved enough to live comfortably.

    Put forth a concerted effort to calculate a realistic life expectancy. There are dozens of calculators online to assist you that span from simple to complex. Verywellhealth.com has links to four good options. Take into consideration the age of your parents and your overall health. Even if the average life expectancy for a fifty-year-old woman is eighty-five, some will live well into their nineties and beyond. If you must use a rule of thumb, consider subtracting your age from 110, instead, to arrive at a rough stock-allocation estimate.

    Debt

    I am not as opposed to debt as some financial advisors. A reasonable amount of debt at a low-interest rate can be a useful part of your financial plan. However, as you glide by fifty, it’s essential to reevaluate your debt level. A low-interest mortgage is fine. A high-interest credit card loan generated by that spur-of-the-moment jacuzzi purchase, not so much.

    Now’s the time to be saving aggressively for the life you desire in retirement. It’s not time to load up on debt. If you have any high-interest debt, focus on paying it off. If the size of your debt load is significant when measured against your assets, reduce it now.

    Downsize

    You know that debt we just discussed? A great way to reduce it and increase savings is to downsize. The kids are off on their own, and you don’t need the five-bedroom McMansion anymore. By selling your large home and moving into a smaller place, you can save substantially. A lower mortgage payment, lower taxes, and reduced maintenance expenses are all benefits. You also don’t need as much stuff in your new, smaller home. eBay, anyone?

    Are you still going to the vacation home on the lake or using the Harley gathering dust in the garage? Now is the time to reevaluate whether you need all of the expensive things in your life. Sell anything you consider excess and use the money to prop up retirement funds.  

    Long-Term Care

    If you arrive at a point in life where you are unable to care for yourself, long-term care may be needed. The half-century mark is a good time to think about the need for long-term care insurance, even if you hold off several years before making a purchase. Unfortunately, this is not an easy decision to make.

    I usually advise against this insurance for clients who are capable of self-insuring against the risk. Long-term care insurance is full of unknowns that can make policies unattractive. Rates can change dramatically and unexpectedly. The need for long-term care may never occur, or it may be for a relatively short period. Some people may be lucky enough to have a strong family network who they can rely on for care.

    Like many things in personal finance, the final decision on whether to buy insurance depends on your risk tolerance. Some people will sleep better at night, knowing they are insured against whatever risk may come their way.

    Whether you lean toward insuring or not, now is a good time to take a hard look at the issue. Weigh the pros and cons and decide which direction is best for you. Talk to someone knowledgeable about the trade-offs.  

    Estate Planning

    Hopefully, this is something you’ve already considered. No? Now is the time. You’re not getting any younger, and you don’t want the state deciding who gets your collection of Elvis figurines.Elvis Figurine

    The first thing you can do is assign a beneficiary to all of your retirement, brokerage, and bank accounts. This can often be done online and should only take about fifteen minutes per account. Next, make an appointment with an estate attorney who will help you create the necessary documents to ensure your wishes are carried out. 

    Plan Your Future

    So far, we have discussed some rather somber topics. This next part is better. It’s time to decide how you want to spend the rest of your life. How long do you want to work? Where do you want to live? Do you want to travel when you retire?

    After answering these questions, you will get a better idea of how much money you will need to save. It will help you make important decisions about your lifestyle. Save aggressively now so you can relax on a beach in retirement? Or would you prefer to work at a job you love well past the average retirement age? Answering these questions is crucial to your retirement planning.

    Also, consider different scenarios. What does your dream retirement look like if money is not a consideration? What type of retirement is most likely given your expected savings? What concessions are you willing to make if your nest egg doesn’t grow as much as estimated?

    Health

    I’m not a physician. I don’t even play one on tv, so I’ll keep this brief. The best retirement planning in the world is useless if you’re not healthy enough to live out your dreams. Exercise and follow your doctor’s advice. Stick to moderation and go easy on that family-size bag of pork rinds. It was meant to be shared.

    Conclusion

    These topics are not new, and you’ve probably thought about many of them before. However, turning fifty is an excellent excuse to revisit them and nail down a plan for the next chapter of your life. Craft a plan that’s ideal for you and enjoy the journey.


    Would you like to receive the PathBridge Financial newsletter? You’ll receive about 4 emails a month. My promise, only the best stuff and never any spam.

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.

    Retirement, the SECURE Act and the Best Soup in Pittsburgh – Links

    Useful Links for Retirement

    Retirement:

    This website is about retirement, and I’m starting with some articles that may help you get there. Then once you’ve arrived, where and how to do it right.


    Don’t wait until you max out your 401k to contribute to a Roth. – (CNBC)

    To Roth or not to Roth?

    That may not be the question as William Shakespeare phrased it. But it is the question you should be asking yourself when saving retirement money in an individual retirement account.


    4 things to nurture in retirement beyond your stacks of green. – (considerable)

    “Many people expect to live ‘happily ever after’ in retirement but haven’t thought much about how that will occur,” he says. He lists these areas as focus points for a happy retirement.


    Do you think tax rates will be higher in the future?  Now’s a good time to consider a Roth. – (CNBC)

    Roth funds…may make more financial sense for savers who expect to pay a higher income tax rate in retirement relative to what it is now. Given current economic and political dynamics, a Roth account may make sense for more Americans than in past years.


    US expats have spoken. These are the ten best countries to retire in.  – (Business Insider)

    Retirees living overseas ranked their experience across 10 categories: housing, benefits and discounts for seniors; visas and residence; cost of living; assimilation and entertainment; quality and accessibility of healthcare; development; climate; government stability; and opportunity for semi-retirement.


    8 steps to help you plan for retirement – (Business Insider)

    When one of his friends tell him they’re thinking about retiring, Dirk Cotton’s first advice is to find an expert. “Find a good a retirement planner, because retirement planning is incredibly complex,” he said. “They’re extremely helpful and worth the investment, and it’s worth it to start talking to them in the years before you retire.”


    The SECURE Act:

    Financial advisors everywhere have been bombarded with articles covering the SECURE Act and what it means to retirement planning. If you’re not familiar with Michael Kitces, he’s a Rockstar in the financial advisory community. When Michael does something, he does it thoroughly, and articles on his website fit this mold. If you want to find out what this new law means for you, start here.


    The SECURE Act will affect your retirement plans. Here’s some detail – (Nerd’s Eye View)

    …the SECURE Act of 2019 makes numerous updates to the rules around retirement plans in an effort to increase access to employer-sponsored retirement plans, and (hopefully) takes a positive step towards addressing the so-called retirement crisis. But as with other legislation in recent years, what legislation may give with one hand, it takes with the other, and in practice, many financial advisors may spend more time dealing with what is lost…than what is gained.


    Soup:

    If you’re ever in Pittsburgh, you’ll notice two things foodwise. 1.) You’ll find fries hidden in unfamiliar places such as sandwiches and salads. 2.) You’ll find Greens and Beans on most Italian restaurant menus. I had no idea this was a Rochester thing as well. Here’s a great recipe.


    Greens and beans are a delicacy. Here’s how to make them right. – (The Life of Jolie)

    This recipe is pretty darn fantastic for a few reasons. First and foremost they’re full of delicious, savory, garlicky flavor. Do I have your attention now? They’re also pretty healthy being that the primary ingredients are escarole and beans. And since there’s no meat, it’s also pretty easy on your wallet (although it would be perfectly delicious with meat added!).


    Pittsburgh Soup:

    How the author failed to include the borscht at the Polish Deli in the Strip District in the Best Soup in Pittsburgh article, I’ll never know. But, I’m willing to give her a pass as she included the phenomenal soup dumplings at Everyday Noodles.

    If you work downtown, the 2020 Cool Down for Warmth event looks worthy. Knowing myself, I’ll be there both days.


    It’s soup weather! A list of the best soups in Pittsburgh – (VisitPITTSBURGH)

    As the air gets colder in the Burgh’, nothing tastes better than a hearty bowl of homemade soup. Pittsburgh has lots of places to get your soup on, and they taste almost as good as your mom’s! Take the chill out of winter this season by trying one or more of these great soups and warm up with Pittsburgh’s hot food scene!


    A soup challenge in Pittsburgh? I’m in! – (Dollar Energy)

    During the 2020 Cool Down for Warmth event, Dollar Energy Fund is hosting a Bowls for Warmth Soup Tasting to benefit families in need of utility assistance. Local restaurants will participate in a soup challenge, serving cups of soup to the lunchtime crowd in Market Square. Attendees get to sample three soups from their choice of over a dozen participating vendors, and vote for their favorite!


    Would you like to receive the PathBridge Financial newsletter? You’ll receive about 4 emails a month. My promise, only the best stuff and never any spam.

     
     
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    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is a Pittsburgh, PA fee-only financial advisor. He is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are within 15 years of retirement.

    How to Spot a Terrible Financial Advisor You Can’t Trust

    A Terrible Financial Advisor You Can't Trust

    There are dozens of articles available online that will help you find a great financial advisor. This is a little different. If you’re more concerned about spotting an advisor that might steal your entire life’s savings and have a starring role in the next episode of American Greed…this is your article! If you can answer yes to one or more of the following questions, then you have likely uncovered an awful financial advisor.

    Do you own an annuity as you walk out of your first advisor meeting?

    The first meeting with any reputable financial advisor should be mostly about you. What are your goals, dreams, and concerns? Are you being asked open-ended questions? If you find yourself talking very little and the meeting is moving toward the perfect product for you, you’ve stumbled upon a salesperson masquerading as a financial advisor. If you’re being offered an annuity, a variable whole-life insurance policy, or any product, in your first meeting, you have found a terrible financial advisor that is likely more concerned about their commission-checks than your financial well-being.

    Were you guaranteed market-beating returns?

    Welcome to American Greed 101. A slick financial advisor guarantees mouthwatering investment returns. They proceed to deliver splendidly, at least on paper. The victim, already projecting their future fortune, increases their initial, cautious deposit and entrusts the advisor with everything they own. This is usually when the financial advisor starts looting the account, stops answering the phone, and becomes nearly impossible to reach. If you are guaranteed anything involving returns, you have found an awful financial advisor.

    Does the advisor have a lot of white space after their name?

    You think, “This business card looks much cleaner without that confusing, alphabet soup, so why worry?” You’re not sure what those designations mean anyway. CERTIFIED FINANCIAL PLANNER™ professionals (CFP®) and individuals with the Chartered Financial Analyst designation (CFA) have been tested on knowledge crucial to being a competent financial advisor. They have also completed thousands of hours of professional work in the field. These designations will not guarantee you find a great advisor, but it is an excellent place to start your search. The white space on a business card might look great aesthetically, but it guarantees you have found an advisor that has not completed the requirements associated with these highly-respected credentials. (For more detailed information about these designations, please scroll to the bottom of my “About” page.)

    Is the advisor free?

    Only suckers pay for advice! Thankfully your new advisor doesn’t charge a dime! This is never the case. If you are not paying your advisor a fee, either for financial planning or investment management, they are being paid through commissions on the products they sell you. There are plenty of commissioned financial advisors that will have your best interests in mind, but this incentive structure rewards behavior that is less than ideal. Unfortunately, not everyone is as noble as they should be.

    Fee-only advisors do not receive commissions, and your interests will likely be aligned. This is an ideal situation if you want to increase your chances of finding a good financial advisor. If you are unclear as to how your advisor is compensated, ask. If they will not tell you or you are more confused after the explanation than before, you’ve likely found a sketchy financial advisor.

    Are you too busy to do a little background research?

    Information such as criminal charges, convictions, disciplinary actions, customer disputes, and bankruptcies is available online. If you have no interest in checking the background of the financial advisor who will manage your life’s savings, there’s no need to use these resources. But in case you were wondering, this information is available at brokercheck.finra.org and adviserinfo.sec.gov.

    Mistakes happen, so if there is a blemish on an advisor’s past, don’t immediately dismiss them. Ask them about it. They should have a clear and reasonable explanation. If this explanation is lacking or an advisor is associated with more than a few negative incidents, then you have probably found a terrible financial advisor.

    Does the advisor act as a custodian?

    A custodian will hold the assets of a client for safekeeping. Usually, a custodian will be a large, reputable firm acting as a middleman. If an advisor also acts as their own custodian, they have access to your money, and unsavory things may happen. The Bernie Madoff pyramid scheme would not have occurred if a third-party custodian was used.

    Do you hate the word fiduciary almost as much as the word moist?

    When I was growing up, the word moist was most commonly used to describe a perfectly baked cake on tv commercials. Somewhere along the way, it became one of the most offensive words in the English language. Don’t believe me? You could spend the better part of a day putting off blog writing to watch YouTube videos dedicated to the hatred of the word moist. (One of my favorites you can send to your moist-hating friends.)

    Unfortunately, the word “fiduciary” brings out the same reaction in many people. They simply don’t like the word. I get it; it’s confusing and sounds odd. But all fiduciary means is the advisor will do what is in the best interests of their client. Sounds good, no? Avoid the word, and you might find a terrible financial advisor who is doing what’s in their best interests instead.

    Did you sign up with the advisor over the phone without an interview meeting?

    A good advisor will want to meet you to determine if you’re a good fit for their firm. This meeting can be done in person or virtually, but it should be a two-way conversation. Do you feel comfortable with the advisor? Do they seem interested in your wants, needs, and concerns? Are they asking you questions to gauge if you would be a good match for their skillset? A lousy advisor just wants to be paid and will take any client with a pulse.

    Are you confident in your ability to spot a financial advisor you can’t trust?

    Hopefully, you now have all of the tools you need to identify a genuinely awful financial advisor. Are there quality advisors who may run afoul of one or two of the topics just discussed? Yes, but the more red flags you uncover, the more concerned you should be.

    Guaranteeing returns, trying to sell a product in the initial meeting, and acting as a custodian are severe warning signs. These red flags should be non-negotiable.

    It can be a minefield out there, so proceed with caution. And good luck avoiding that awful advisor who will siphon off your retirement savings to buy an apple-red Hummer in order to attend Fyre Festival II in style!

    Below is a picture of David Tuzzolino, CFA, CFP®. He is definitely not a terrible financial advisor. Of course, I’m biased. Schedule a call and find out for yourself.

    Schedule a Call

    Financial Advisor David Tuzzolino

     

    David Tuzzolino, CFA, CFP®, is the Founder and CEO of PathBridge Financial, a firm that specializes in providing comprehensive financial planning and investment management services for clients that are nearing retirement and love to travel.