This summer, I took a 4 hour course at King Arthur Cooking School in Vermont. The class was titled “Bread Making 101.” My mother was an accomplished bread maker and taught me many of the basics of “Being Betty,” but bread baking was not one of the lessons I learned. This course looked like a good introduction.
Having never made bread before, I didn’t realize that I would have to get my fingers in the dough. Within the first 5 minutes my rings, perfectly manicured nails, and arms up to my elbows were caked in dough. I shared this experience with one of my financial adviser girlfriends and she said, “Well, Glenda, you have spent your entire career playing with the dough.” She was referring to my career in the wealth management field. I refer to this as “playing with the numbers.”
Since I sold my second wealth management firm almost 4 years ago, I have closed that chapter of my life, managing portfolios and financial plans for clients. However, for our family portfolio, I still follow the same disciplines I advised my clients to follow.
To put my approach into context, it is important to know that I am both a CPA and CFP® and have practiced financial planning and wealth management for over 30 years. One of my former clients was surprised to learn that I didn’t manage my own plan and portfolio. Over the years I have learned the value of professional advice. We pay a financial planning firm to advise us on our portfolio and financial plan. My advisers have ongoing, continuing education and proprietary information available and I want them to use this information on our behalf. I believe the money is well spent.
Now, I am practicing what I preached over my entire career. I wanted to be able to be able to enjoy life, read stacks of books, continue to learn, travel and spend time at our beach home. I want to explore what I can do other than wealth management. Yes, I was willing to give up “my identity” from my career.
Here are my recommended steps for managing your portfolio so the money or “dough” will last your lifetime and perhaps beyond.
10 Steps for Managing Your Portfolio:
1. Cash Management
Overspending is the quickest way to ruin a financial plan. (Divorce running a close second.) Annually, lay out your cash flow budget by category. Monthly, download actual spending from your brokerage cash management account or use a program such as Quicken. I monitor the expenditures and make sure we are on track with our monthly spending plan. Throughout the year, as major expenditures arise, I add the item to the plan to make sure I have the available cash.
2. Hire a Professional
Don’t try to do it yourself. Hire a Certified Financial Planner (CFP®) to work with you and design a written financial plan that is updated at least annually. Also, I believe it is important to pay for this service either in the form of an annual retainer and/or a portfolio management fee. After all, if it is given for free, how vested do you think your advisor will be in your long time financial future?
3. Develop an Investment Policy Statement
This defines your risk tolerance, expected return, time horizon and your asset allocation. Work with your advisor to develop the document and put it in writing. Sign and date along with your financial advisor. This is used to design your portfolio and monitor the result. Work with your advisor to select the best of class investments, whether ETFs, Mutual Funds or private money managers. Make changes as necessary.
4. Monitor Your Portfolio
Don’t just invest your money and not look at whether it is helping you reach your financial objectives. Meet with your advisor at least bi-annually or quarterly to determine any changes necessary to keep the portfolio in balance.
5. Tax Planning
Work with your CPA to monitor the tax impact from your investing and other earned income. Realize losses to offset gains. My rule is when markets are ugly, take capital losses. When markets are positive, use appreciated securities to gift for charitable purposes. When you sell a business, consider setting up a qualified plan to help shelter the gain. Since both companies I sold had multiple year payouts, this worked well for setting up a pension plan. Clearly, the tax laws can change, so don’t stick your head in the sand. From the information I can gather, I have now calculated what our new taxes will be if the proposals are enacted into law.
6. YOU CANNOT TIME THE MARKET!
Over the years, I have heard comments like “the market is too high,” and “should I go to cash?” No is the answer. This may signal it is time to rebalance the portfolio back to your original asset allocation. Even in prolonged down markets like 1987, the biggest mistakes is to go to cash and miss the rebound. Remember, success in investing is about time, not timing.
7. Monitor Your Financial Plan
You should have a written financial plan that lays out your goals for retirement planning, estate planning, education planning, tax planning. Our advisor works with us to draft the document and formally updates us with a written Annual Review. Retirement planning is most important to our family, since we retired 4 years ago and know the monies we have accumulated must last our lifetime. It helped us know whether we had accumulated enough to retire and stop working – and in retirement, how much annually we could spend.
8. Develop a Philanthropy Plan
A luncheon/workshop I attended several years ago advised setting Annual and Lifetime Charitable Gifting goals. In our early years of retirement, I realized we were giving money in the same manner as when we worked. This helped us to actively monitor our giving to make sure it mirrored our personal goals, priorities and plan. We had to say no to a couple of gift requests when we reached our annual goal. We are in the process of updating our estate plan to handle our bigger gifts after we die.
9. Play with the Numbers Regularly
By “playing,” I am referring to taking a serious look, at least twice a month, at the portfolio and spending. Since we are living off the portfolio in retirement, we must “raise” cash to pay for our living expenses. I refer to this as reverse dollar cost averaging since, rather than using a systematic way to accumulate monies, this provides a systematic way to spend it down. I have set up taxable distributions such as interest and dividends to be paid into a specific account that we use for spending.
Also, since our plan shows in our early retirement years, before we start collection of social security at age 70 and (RMD) (Required Minimum Distributions) from our retirement plans at 70 1/2, we need taxable income to use our personal deductions and itemized deductions. I follow the same strategy for our retirement fund to create the needed taxable income.
10. Keep Money in Perspective
You can always make changes like selling your home, getting a job and cutting spending if you see you cannot achieve your financial goals. Remember: “This ain’t no dress rehearsal.” Enjoy the ride! My goal is that the last quarter I have should be flipped onto my coffin. There will be no U-Haul trailing my hearse. You can’t take it with you. Enjoy and spend what is reasonable and leave what’s left to the charity or loved ones of your choice.
Following these 10 steps has provided us security in retirement. You see, I eat my own cooking.
Now, back to bread making. It has been over 3 months since that class in Vermont. With cooler weather and great soups to prepare this winter, I will dust off my rolling pin and get started. Stay tuned for my upcoming recipes in Prime Women and my upcoming Being Betty blog.
