Ironwood Recap – Week of October 21st, 2019

Ironwood Market Recap

It was a solid week in the markets this week with the S+P gaining almost a percent and a quarter. The Dow Jones gained just under three quarters of a percent and the 10 year treasury note fell in price to a yield of 1.8%.

Interestingly enough, many of the economic indicators that came out this week missed estimates, with home sales, durable goods orders, core capex orders, and the consumer sentiment index all coming in below expectations. That didn’t seem to upset the market though, since earnings results were very positive across the board with a few exceptions like Boeing and Amazon. The guidance Amazon put out pointed to a slower than expected holiday shopping season which upset investors.

Next week we are looking forward to the Case-Shiller home price change, pending home sales, Q3 GDP and a slew of other data on the economic front. Additionally it’s a huge week for earnings with roughly 1,000 companies reporting.

~ Alex

Ironwood Recap – Week of October 14th, 2019

Ironwood Market Recap

This was a pretty flat week in the markets with both the Dow and the S+P changing less than a quarter percent. Likewise the 10 year treasury also hardly moved and stayed at about 1.75%.

On the economic front, both retail sales and housing starts came in lower than expected, showing some signs of slowing. Additionally, China’s GDP growth was lower than expected. None of this really shook the market, and it would have been a nice up week for the Dow if not for bad news on the 737 MAX 8 front pulling Boeing significantly downward. Corporate earnings were mostly in line with estimates with a few standouts such as Alcoa and Netflix.

Next week we have consumer sentiment and new home sales data to look forward to along with about 600 publicly traded companies reporting earnings as earnings season goes into full swing.

~ Alex Parrs

Ironwood Recap – Week of October 7th, 2019

Ironwood Market Recap

This was the first positive week in the stock market in several weeks.   The S+P logged just over a half a percent gain and the Dow Jones gained almost 1%.  The bond market fell as the yield on the 10 year treasury rose by almost a quarter percent to 1.75%

Most of the economic news that came in this week was in line with expectations, doing little to move the market.  The big news was the lower than expected core inflation rate.  This paves the way for more Fed rate cuts if things slow.  The market has begun to price in another rate cut soon.  Additionally we got a positive surprise with consumer confidence being much higher than expected, and hopes of a China deal.

Next week we get some retail sales data as well as housing starts.  More importantly, earnings season kicks off in earnest with about 170 companies reporting earnings next week, giving us a better view of corporate profitability over the last three months and also giving guidance on future profits.

Ironwood Recap – Week of September 30th, 2019

Ironwood Market Recap

The markets this week were much  more volatile, with a bad start to the week being mostly erased by a good finish.  The S+P 500 dropped a little less than 0.5% this week and the Dow Jones was off about 1%.  The big mover was the bond market with the 10 year treasury dropping 1.68% to 1.52%.

The week started poorly with a bad reading on the manufacturing index.  The expectation was for neither growth nor decline, but the actual reading came in showing the worst reading in about ten years, signaling a shrinkage of new orders.  The mid-week unemployment data was slightly lower than expected, but not too dire.  The big news came on Friday when the unemployment rate unexpectedly dropped to 3.5%, the lowest rate since 1969.

Next week we are looking forward to job opening data, wholesale inventories, inflation data, and the consumer sentiment index.  Those data will let us keep an eye on the general state of the economy, and my big fear, that of inflation.  With such a low unemployment rate, inflation could show up, and that would mean the likelihood of further fed rate cuts would shrink significantly.

~ Alex Parrs

Get debt free as soon as possible? Bad advice!

Get debt free as soon as possible? Bad advice!

I spend a lot of time reading articles on the internet about economics and personal finances. The comments are particularly interesting since they give you an idea of what average people are thinking. Something that really astounds me is this absolute fear of debt. I just read an article about a young couple who was making 4 times their minimum monthly payment to their only debt, a student loan, and decided to take a vacation with the money they had saved for that purpose. The comments absolutely blasted them!

It seems, in the eyes of the readers, that people should put every effort into becoming debt free as soon as possible and delay expenses and savings until that happens. Most of the commenters stated that paying off all their debts should have been done before they take a vacation.

I don’t know where this advice is coming from, but it’s just plain evil.

The advice to avoid debt like the plague is short sighted and it will make your standard of living lower.

It will make you poorer.

It almost feels like a conspiracy to keep the masses poor, it’s such prevalent advice. How many billionaires didn’t take on debt? How many billion dollar companies don’t have debt? Debt can make you rich! In fact, it’s almost impossible to get rich without debt.

So you have a choice. The first option is to live as debt free as possible. Assuming you’re an average person with an average income, it will take you years to save up for a house. If you want to pay cash for a house? Good luck! By the time you have saved enough for a house, the price will have gone up so far you won’t be able to afford it. Meanwhile you will have paid people like me tens, if not hundreds of thousands of dollars in rent. Thank you, by the way! If you are willing to get a mortgage and then attack that debt as quickly as possible, you are still selling yourself short. With today’s interest rates, a mortgage is practically interest free after inflation and deductions. Every extra dollar you are putting towards your mortgage is you investing at just over 0%. Does that sound like a good idea?

The second choice, the choice used by most of the rich, is to use debt wisely. If you can borrow at low interest rates to buy an appreciable asset that will grow at a rate higher than the borrowed interest rate, then do it. The only thing you need to worry about is the cash flow. Make sure you can make the payment even in bad situations. The math works out like this. If you can borrow $100 at 4% and invest it at 6%, you are making $2 per year. If those are guaranteed rates, how much should you borrow? As much as possible! Of course, while the borrowed side can be a guaranteed rate, the invested side is rarely guaranteed. In the long run, however, you can find investments that average 6% or more and the math will work out and make you richer. Every dollar of debt you pay off makes your potential net worth lower because you can’t invest that money at the higher rate.

In my personal situation, I got out of college, and one year later bought a house. I financed it. Then I bought a rental house, also financed. The next year, I bought three more. The next year I bought ten more all using debt. By the time I was three years out of college, I had accumulated about two million dollars in debt from mortgages. I owned 14 homes though. The rent from those homes paid the mortgages. A few years later, the financial crisis happened. It was painful, and I had to chip in from my personal income, but I covered the mortgages. Now it’s been almost twenty years, and it hasn’t been a particularly good real estate market over that time, but my renters have been making my mortgage payments for decades. The houses have doubled in price, and the mortgages have gone down. I have collected millions of dollars in rent from other people that has gone to buy me houses. Without debt, it could not have happened.

Yes, debt can be bad if used incorrectly, but don’t let anyone tell you that debt itself is bad. There are of course risks and it doesn’t work every time, but look at ten rich business people’s situations. I bet nine if not ten of them got there using debt.

Don’t let the mass media keep you poor with bad advice.

Like always, if you’re facing retirement and need a second opinion learn about what makes us different, we’ll audit your entire strategy to make sure you have the right tools to make your retirement as low risk as possible and still drive in a good income.

And if you want a further dive into some of the biggest risks with retirement planning then check out our webinar or download our ebook on taking income in retirement.

What Financial Advisors to Avoid? – Choosing a Financial Advisor in Tucson, AZ – Part 5

Financial Advisors To Avoid In Tucson, AZ

In our final post on the subject it’s time to understand which financial advisors you should avoid, and how to find them.

It seems like everyone these days is calling themselves a financial advisor.

There’s everything from bloggers talking about retiring early or radio pundits, to insurance agents calling themselves full financial planners or “money coaches.”

It’s no wonder it’s confusing.

Probably the most common thing we run into is someone who recommends almost nothing but annuities (AKA an insurance agent), but calls himself a financial planner when in reality they’re anything but.

Which would you rather have?

An insurance agent who only sells insurance or annuities…

…or a financial advisor who’s legal obligation is to put your interests first?

When we tell people the difference, they usually request the latter.

That’s why it’s imperative that you learn to tell them apart, so you can know which ones to seek out and which ones to avoid.

The issue is simple: commission.

Some products pay far more commissions to an “advisor” than others.

Naturally, an advisor who bases their income on how much commission they generate will lean towards those products.

We met a lady whose late husband had been sold over a dozen different annuities.

Here’s why: Each of these annuities has a 10% free withdrawal privilege each year. This allowed her husband to take out 10% per year and do whatever he wanted with it.

What did the advisor recommend?

He recommended taking that 10% from each annuity, every year and using it to buy a new annuity…

It didn’t matter that the new annuity carried a brand-new, decade long surrender charge or that the client would now lose access to their money.

Do you think that was really in the best interest of the client?

To help you out to make sure you can tell different types of advisors apart, here are a few things to look for.

Earlier in our series, we have talked repeatedly about the word, “fiduciary.”

This is a great place to start.

Someone who is acting as a true fiduciary is going to have a really tough time justifying a high built-in commission.

In addition, insurance companies can hide their commissions so it’s hard to know they are there, let alone who actually ends up paying them.

It’s quite simple.

You do.

The insurance company isn’t going to take money out of its pocket to pay the advisor. That would hurt their bottom line.

So, whose bottom line do they want to impact?

Just because a salesperson isn’t a fiduciary, doesn’t by itself mean you can’t trust them.

For example, car salesmen aren’t fiduciaries.

Not all of them are out to harm the consumer. Likewise, there are good, ethical insurance agents.

People need life insurance…in some cases.

The problem is when you the only tool you have is a hammer…everything looks like a nail.

So you need to be able to determine who is actually a broad based financial advisor and who is just a guy with a hammer looking to solve every problem one way.

The first way to determine this is to look at their licenses.

If all a “financial advisor” has is an insurance license, then that’s all he can sell you. I would avoid people who call themselves advisors who can only sell one type of product.

If you look deeper into the licenses a person holds, you get more insight into their structure and what they can sell.

For example, someone who holds a series 6 or 7 license is going to be a commission based broker, whereas someone who holds a series 66 is going to be fee based.

Again, those advisors who are commission based are held to a different standard of what they can sell you as opposed to those who are fee based. They also have different incentives.

The company an advisor works for also tells you something about him.

For example, someone who works for Northwestern Mutual is likely going to recommend Northwestern Mutual products over anyone else’s.

This is also the case in many big names such as Merrill Lynch.

I had an account with them when I was in college. All they recommended were Merrill Lynch branded mutual funds.

Banks are often the same way.

There is no one company that has the best products in all the different sectors of investing. If there were, no other companies would exist!

So why would you lock yourself into one brand of products by choosing an advisor who works for a company that has its own products?

That’s a clear conflict of interest on the part of that advisor.

In the end, remember the tips we went over in the entire series:

  1. Do your research.
  2. Understand the Designations
  3. Ask the right questions.
  4. Decide if you really need an advisor in the first place!
  5. And make sure to avoid anyone with a conflict of interest to your future.

Hopefully these tips will help you feel more confident in choosing the right financial advisor for you.

And if you want to see how we think a financial advisor interview should, then interview us and then go meet a few others.

If they pressure you and don’t allow you to go home and think about it, before making a decision?

Then maybe it’s time to work with someone who will.

Sincerely,

Alex Parrs

Do You Really Need a Financial Advisor? – Choosing a Financial Advisor in Tucson, AZ – Part 4

CHoosing a Tucson Financial Advisor - Do you need one.

Do you really need a Financial Advisor? In this guide we’ll help you find out when and when not to start looking.

You’re about to retire and your 401(k) and other investments have grown over the years to where you think you’ll have enough to retire comfortably.

You’ve talked to a few friends who have retired recently and they’re telling you great things about the financial advisors they hired to help them manage their funds in retirement.

But one question keeps, going through your mind, “Do I really need a financial advisor?”

Watch this to find out.

I will be the first to tell you that not everyone needs a financial advisor and that it really depends on your situation.

Let me start with a few examples.

I recently met a couple who had built a nice bond ladder and were simply living off the interest. There weren’t any moving parts, and nothing needed to be changed. Why bother paying an advisor?

It’s hard to generalize, but I will try to give you some useful examples of people who probably don’t need an advisor.

Reason 1 – When your main asset is a pension.

Probably the most obvious couple who didn’t need an advisor was a pair of retired teachers from the Midwest.

They had very little in their retirement accounts but had great pensions. With their guaranteed monthly incomes, there was no way they were going to run out of money. And as a bonus, they could even handle costs associated with a health issue purely from their pension income alone.

Their accounts weren’t of a significant size for them to need a manager so we give them some free advice and sent them on their way.

Reason 2 – The Passionate Investor

We have run into countless people who really have a passion for managing their own money.

They come in because a friend or a relative tells them they have to, but they truly enjoy doing the research, staying up with current financial markets and trends and spending the time to learn what they need to know and implement every day, week or month. For the most part these people don’t need a financial advisor.

There are two important exceptions here.

The first one is that you need to be very careful where you do your research, and don’t just stick to one source. Clients are constantly concerned and sending us doom and gloom articles from a “prominent financial expert” who was fined by the SEC for defrauding and misleading investors.

In my opinion, he and his firm haven’t changed their ways, so you really have to make sure you’re getting advice from the right source.

The second exception here is a tougher one to recognize and overcome.

That is emotion.

When faced by a crisis, will you make the wrong move with your finances?

The tough part is most people don’t or can’t know the answer to that one in advance. Another financial crisis will hit, and you might have been still working the last time one hit. Your mindset will be different ten years into retirement than when you were working. Before, you could simply delay retirement if you made the wrong call. Once you’re retired for ten years, it may not be possible to go back to work if your investments fall apart.

That’s why it’s critical you can control your emotions and that of your spouse when dealing with these potentially life-altering decisions.

Reason 3 – The Wealthy

I already talked about the people with a big pension and little assets, but oddly enough, you can also argue that people with huge amounts of assets don’t need a financial advisor.

If you have enough saved and a modest enough lifestyle that there’s no possible way you could run out of money, then a financial advisor is not necessary.

Even if you’re so bad at making investment choices that your portfolio loses money every year in retirement, you could be rich enough that it simply doesn’t matter. Of course, your heirs might prefer it if you hire a competent advisor but at that point, it really comes down to what you value most. If you want to make sure you leave money to your children, then it can definitely be a positive to get a second opinion.

If you do all the right research, find yourself to be qualified to manage your income stream in retirement, and feel confident that you can go it alone, make sure to take a step back and ask yourself this question annually.

Am I prepared for things changing?

We actually have a retired Certified Financial Planner as a client because she recognizes that her knowledge is out of date since she retired and she can’t keep up with current markets and investment products.

In addition as some people age, their interest and ability to manage their finances might dwindle. Don’t do your family the disservice of not doing this analysis every year.

So, do you need an advisor?

In the end it really comes down to your skill level, how important your wealth is for your income, and your history controlling your emotions.

If you can manage all the above without a problem then you probably don’t need one.

If you don’t feel confident, have issues making decisions, and the market keeps you up at night and you want a guide. That’s when an Advisor really matters most.

And if you need to talk to someone who will give you an honest opinion? Then give us a call. That’s what being a fiduciary is all about. Putting your interests first no matter the situation.

Until next time,
Alex and Robin.

In the next installment in “Choosing the Right Financial Advisor for You,” we cover the advisors you should avoid and why we are so passionate about this.

See you there.

Tough Questions You Need to Have Answered First – Choosing a Financial Advisor in Tucson, AZ – Part 3

Choosing Fa-3

There are loads of articles out there about “questions to ask your financial advisor,” and those are really helpful. However, sometimes the tough questions are the ones that are the most important to get answered before you hire someone. Unfortunately, not everyone knows the right questions to ask. This can lead to some big mistakes.

Several years ago I ran into someone who had hired a financial advisor at a big bank. They had asked lots of questions about qualifications, the safety of the custodian, types of investments etc.

Unfortunately, the client didn’t ask was what brand of products the bank would invest their money in. The bank put all of their money into proprietary products owned and managed by the bank. A couple years later, the client wondered why his performance was lacking and realized that the bank hadn’t picked what they thought was best or even investments with the best track record, but rather what would make the bank the most profit.

This person’s theory was that you can’t go wrong with a brand name. While this might be true with tires, I would argue that bigger names in the financial advice industry actually have more conflicts of interest than smaller firms which can be bad for the client.

To help you out, here is a list of tough questions you need to ask. I call them tough questions because many financial advisors will squirm when you ask them.

Check out our video as well. In it, we go over some basic and some tough questions you need to ask.

The financial industry is REALLY good at hiding compensation. To me the first question you should ask is,

“How do you get paid?”

Don’t accept a vague answer to this one like, “I’m like a travel agent, If you buy this investment from me or straight from the company, there’s no difference, they just pay me a finder’s fee.”

You need to know whether the advisor gets paid on commission, by fee, or what?

“Do different products pay you differently or more?”

If some of the products pay the advisor more than others, how do you know you’re getting unbiased advice?

“Do you have proprietary products?”

I see this all the time. Someone has a portfolio with “insert big name investment company here” and every one of their holdings is in a company owned fund. There is no one company who is the best at everything in the investment world. That would be like saying Chevy makes the best pickup, sports car, hybrid, electric vehicle, midsize sedan, semi truck, etc. They may be great in one or two areas, but other companies are better in other areas.

“Are there any complaints about you or your firm?”

Just having a complaint against them should not disqualify an advisor. Even the best restaurants have negative reviews. However, you should be aware of the circumstances and the resolution of the complaint.

“What are your qualifications?”

The test I took that allows me legally to charge for financial advice took me less than a day of study to pass.

Just because someone is a financial advisor does not mean they know more than you. How do you know they’re qualified? In another article in our series, we go over some designations in the financial industry that show a commitment to further education in the field.

“How do you pick your investment recommendations”

If the guys back at corporate just make the recommendations and the advisor blindly follows them, what value really is the advisor? Why add a middleman?

“What is your investment strategy?”

This one makes me chuckle. A lot. More than half the people who come into my office with an existing advisor or doing it on their own cannot answer this question. And no, “To make money!” is not a strategy, it’s a goal. It’s like saying, “I’m going to Tahiti.” And not figuring out how to get there.

“Do you have sales goals/competitions/quotas?”

If your advisor will win an all-expense paid trip to an exotic island if they sell enough of product “X,” or if they don’t keep their job unless they make enough commission in a particular product every month, I would be very worried about how unbiased they will be.

“Are you acting as a fiduciary?”

This is a big one and in my opinion, it is the most important. A fiduciary has to put your interests ahead of his own and minimize conflicts of interest. It doesn’t mean they’re educated, or good at picking investments, but at least it means they’re on your team.

Even if you get satisfactory answers to these questions, it’s not unheard of for people to lie. Check out our other articles and videos for ways to double check these answers and make sure you can be confident of your choice of financial advisor.

In the next installment in “Choosing the Right Financial Advisor for You,” we cover some top questions you can ask potential advisors that will help you understand their business model and philosophy in detail.

See you there.