In keeping with my "steal shamelessly" theme, I'm providing a guest post from fellow advisor David Waldrop, CFP®. David is the President of Bridgeview Capital Advisors, Inc. in El Dorado Hills, California. David focusses on helping his clients organize and map their financial resources to their financial goals so that they can achieve long-term success on their terms. He's also a great inspiration. Enjoy!
In financial theory, risk is equated with volatility. Often this is described mathematically as standard deviation, a measure of how much variation there is in the data. Although the math that illustrates this concept is relatively straightforward, it is not helpful in understanding risk in terms of investor behavior.
When I work with clients, I discuss risk in a much different way. I use simple illustrations to show clients what might happen to their portfolio in a downturn.
To make it even easier to grasp, I talk about real dollars, not percentages. People tend to be comfortable talking about percentages when their portfolio rises, but not when it falls. “We made 5% this quarter,” they’ll say. But when investors see declines in their portfolios they think in dollars: “We lost $50,000 last year.”
Today I'm pleased to share a guest post from a fellow advisor. David Waldrop, CFP® is the President of Bridgeview Capital Advisors, Inc. in El Dorado Hills, California. David focusses on helping his clients organize and map their financial resources to their financial goals so that they can achieve long-term success on their terms.
I found David's recent article particularly inspiring:
Today's note is a little more industry oriented than normal. Still, I thought you would be interested because it touches on my philosophies regarding Financial Planning:
Recently I got into a Twitter conversation (yes, I tweet. You can follow me at the bottom of the note) regarding an article claiming that most millennials shouldn’t be bothered with financial planning. One advisor responded that most people under the age of 50 don’t even need financial advice. Just “save as much as you can in your 401(k) and Roth,” this advisor wrote.
I completely disagree. This line of thinking is a peeve of mine. In fact, it’s more than a peeve — I set up my firm specifically to help these types of clients and work with them over the entire course of their financial lives.
Americans are enamored with debt. We can’t stop ourselves from buying things even if we don’t have the money to pay for them.
This is bad for obvious reasons. Paying off debt crowds out other spending, so that you don’t really get to spend your money on what you want anymore — you spend your money on what you used to want. In essence, you are trading an immediate purchase for an ongoing payment stream, reducing your financial flexibility. Almost every terrible financial situation I have seen has been a result of overindulgence in debt.
This time last week, I added an item to my to-do list: Start writing my next client note. The topic was going to be “Sideways Markets Can Be Difficult to Deal With, Too,” or something to that effect. What a difference a week makes!
Let’s talk about austerity. No, not the austerity proposed in Greece (although I’m probably the only one not writing about Greece). Rather, I’m talking about personal austerity. I frequently recommend that families develop an austerity budget. Let’s describe what this is and how it might help you.
Six years into a bull market for U.S. stocks, you may be wondering: Is the run over? The financial news is peppered with references to the stock market being overpriced and ripe for a correction, so it would be natural for an observer to worry.
I thought I would take a look at some of the data used in these predictions to see what I could learn. One of the measures often cited by those claiming the market is overvalued is the cyclically adjusted price-to-earnings ratio. This is also called the CAPE or P/E10. I call it the PE ratio’s big brother.
As Warren Buffett has famously said, “Price is what you pay. Value is what you get.”
The price of a particular stock is clear to anyone who cares to look it up. Just punch in the stock ticker symbol on a financial website, and you’ll see the current price instantly. Determining the value of a stock isn’t so simple. While a stock’s price is a simple fact, value is subject to interpretation and analysis. Differing opinions of value explain why the buyer and the seller can both walk away from a stock trade thinking that they got the better of the deal.
Every parent knows that having kids complicates your financial life. The most recent federal estimate puts the average cost of raising a child born in 2013 until age 18 at nearly a quarter of a million dollars — $245,340 to be exact. And that doesn’t even take into account saving for college.
Your actual cost will vary, of course, according to who you are and where you live. The bottom line, though, is that you’ll need a sound financial checklist when planning for a child. It should address your employer’s family leave policy, as well as anticipated child care costs, health insurance and, eventually, paying for college.
Note: The contents of this site are general in nature and not intended as specific investment advice. All investments are subject to risk; including loss of investment value. If you have any question regarding investments or concepts in these pages, please consult with an investment professional.