2 Common Money Tips I Tell My Customers To Ignore

  • As a financial planner, my clients ask me about all kinds of financial advice they’ve read online. There are two common tips that I tell them to ignore.
  • The first is that everyone should have a revocable living trust. This is a good idea for some people, but not for all. That’s why we call it staff finances – general financial advice usually doesn’t make sense to everyone.
  • The second tip I advise clients to ignore is that target date funds are the best way to save for retirement. Depending on when you plan to retire, they might not make sense to you.
  • SmartAsset’s free tool can find a financial planner to help you take control of your money ”

Being born into and contributing to the Information Age is one of the great perks of being a Millennial. Between social media, YouTube, and online posts, the answers to almost any question you can think of tend to be a click away or a Google search.

The downside to having access to all this data? Not all information is useful information … or even accurate.

My main job as a financial planner is to provide financial advice to my clients. But when I sit with clients, I often find myself explaining the need to ignore a few common elements of Wrong advice based on incomplete or inaccurate information.

1. Everyone should have a revocable living trust

Taking financial advice that is not tailored to your specific situation can be damaging. There’s a reason it’s called staff finance.

Know that everyone’s situation is different. Things like risk tolerance, income, budget, goals, taxes, and even the time horizon you need to work with can make generic and universal financial advice invalid for your particular situation.

A common general recommendation that I find myself debunking over and over again is the claim that everyone should get a revocable living trust. Although a revocable trust lounge is great for some people, it’s useless for others – and not set up a trust when you don’t need it can save you thousands of dollars.

Suze Orman, a big proponent of this type of trust, says getting a revocable trust helps your estate avoid homologation if you die, and gives you and your loved ones more control over your property if you become incapacitated.

This is not wrong, but it may be overkill for your specific situation. Court filing fees and attorney fees vary from state to state. Depending on where you live, the cost of probate might actually be less than the cost of setting up a trust.

Your assets may not even need to be probated. If most of your estate was payable on death to a registered beneficiary, those assets will bypass the probate process whether or not you have a trust. This includes taxable accounts with listed beneficiaries, IRAs, and 401 (k) which, for many people, are where most of their financial assets live.

Finally, if your primary concern is to protect yourself or your finances in the event of incapacity, you may simply need to establish a lasting power of attorney (not necessarily an entire trust). The living trust will allow you to make financial decisions about the assets held in the trust, while the financial power of attorney is more comprehensive and may allow your representative to make financial decisions in more situations.

2. Maturity funds are the best way to save for retirement

Target date funds are mutual funds commonly available in your 401 (k) plan or other employer-sponsored plans that generally coincide with the year of your retirement.

If you are 40 in 2020 and plan to retire at 65, you could choose a fund maturing in 2045 for your investments. As you get closer to your expected retirement date of 2045, the fund automatically adjusts its allocation to reduce exposure to equities (and therefore the risk you take).

While I think using target date funds presents a better option than selecting nothing and leaving contributions from your account in cash, which some investors do by failing to select an investment option in their 401 (k). (k), I think they should be used more as a placeholder rather than a ‘set-it-and-forget-it’ strategy.

Target date funds force you to invest based on the age at which you think you want to start accessing your money. Even if that age is 40 or 50 in the future, most target date funds do not offer the option of investing 100% in stocks – which, depending on your specific situation, could be exactly what. you must do to generate enough returns to achieve your goals.

This could be true even if you are closer to retirement. Most Americans have not saved enough for retirement (or, at the very least, feel like you didn’t). If you are currently 50 and want to retire at 65, the Vanguard 2035 Target Retirement Fund will begin with an allocation of 73.51% in shares (as of October 31, 2020). But if you started saving late, you may need to take more risk in order to earn higher returns to catch up before retirement.

Target date funds can also give investors a false sense of security. Some people may think that the continued reduction in exposure to equities makes funds safer than other options. But during the Grand


in 2008 and 2009, certain maturing funds fell by as much 20% to 40% in their planned retirement year.

There is no better option when it comes to investing, and I don’t think a put-and-forget strategy is ideal for most people who are trying to save for life. retirement. Most employer-sponsored plans generally have limited investment options, as they have already reviewed thousands of funds to select what they perceive to be the best options for your plan.

For those more investment savvy, this can give you the added confidence to select the investment strategy that’s right for you. On the other hand, if you think more advice is needed, you should seek additional help from a financial planner.

As America continues to provide us with all the information we might need right at our fingertips, I caution you to heed this and ensure that you are following the advice that is right for your personalized situation.

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