FAQ: Who needs a wealth manager?
& Introducing the hellogoodplace workshop
:::Issue #5. Why are you receiving this? You want to be in a good place. This is where I share educational content and practical tips on personal finance, so you can get to your good place, wherever that maybe:::
👋🏼 Hello wealth builders!
Welcome to the fifth issue of the hellogoodplace newsletter.
I was in NYC this time last year visiting my sister and a few friends. We decided to eat out at a nice Italian restaurant called Scarpetta, joking that we might as well go all out since it might be the last time we see each other for a while. Welp. America went into full lockdown mode just a week later and the stock market plunged 30% faster than we’ve ever seen.
The stock market recovered with the greatest 50-day rally in history and 2020 turned out to be a good year for US stock investors. With multiple vaccines approved and the rollout starting to pick up, investors are cautiously optimistic that things will resemble normalcy soon. But what will the new normal look like? Which industries will come back and which ones are lost forever? Will we finally start to see inflation? The uncertainty is likely playing part to the increased market volatility recently, especially for technology stocks that benefited most during the pandemic. I wouldn’t call it panic just yet, but I sense a lot of nervousness around investors with tech heavy stock portfolios.
The stock market does not like uncertainty, even when that uncertainty seems to be leaning positive. This is a good time to remind you that it’s impossible to separate life with uncertainty, and uncertainty with investing. One of the benefits of being broadly diversified is that you don’t have to worry about what’s going to happen tomorrow. An appropriate mix of stocks and bonds in a low cost, broadly diversified portfolio is not sexy or exciting, and that’s the point.
What I’ve been up to:
This is a fascinating new social media platform where you can meet people from all around the world. The difference is that it is audio only - no video, no photos, no messaging. It has an element of Twitter in that you can strike up a conversation with anybody, and the more organized rooms feel like you’re listening to a live podcast. I’ve made new friends and connected with old friends that I haven’t talked to in a while. It’s oddly addictive. If you’re on clubhouse, connect with me!
Ever wonder how much company stock to hold? Or what to do with a stock that has become a significant part of your net worth? I hosted a webinar called “Successfully Managing Company Stock”, and walked through the pros and cons of have a lot of stock in one company, why diversification is so hard, and some possible ways to sell stock without a huge tax hit. The first webinar was for employees on the BrightPlan platform and it had 300+ registrations. I will be hosting it again with Plancorp for the general audience on March 23rd. Register here if interested.
FAQ: Who needs a wealth manager?
Wealth managers are expensive (more on this later). Good news is that the vast majority of people don’t need one.
I find that there are two qualifications for needing to hire a wealth manager:
This may sound obvious, but you need wealth to hire someone to manage your… wealth. How much wealth? I say at least $1m in savings or earnings.
There is no scientific answer to back-up this number. But from my experience, I can usually help clients get better investment returns by keeping them disciplined, like rebalancing when necessary and taking losses & gains at appropriate times. Vanguard has shown that this can add up to 3% to client’s annual returns when averaged over a long time. A 3% return on a $1m portfolio is $30,000, well above what I would charge. A 3% return on $100k portfolio is $3,000, and wouldn’t cover my fees.
I also work with people that have high earnings - on average of $1m annually and above, because many of my recommendations can be implemented at these incomes. These may include making mega backdoor Roth contributions ($30k+ annually), setting up cash balance pension plans for side income ($100k+ annually), setting up individual 401(k) plans ($58k+ annually), setting up donor advised funds (avoids capital gains tax and reduces income tax), and so on.
Your finances have some level of complexity. Complexity typically results from having various sources of income, or multiple planning needs. Examples:
Not complex: someone making $1m cash salary.
Complex: someone with $1m of income from a mix of equity compensation, W-2 (salary), 1099 (independent consultant, self-employment income, board seat compensation), K1 (partnerships), etc.
Not complex: retiree minimal investments and Social Security.
Complex: retiree with a mix of traditional & Roth retirement accounts, taxable investment portfolio, deferred compensation, Social Security, pension, investment property income, etc.
Not complex: single person with no dependents.
Complex: non-traditional couple, kids, dependent parents or siblings, taxable estate, tax planning needs, etc.
Wealth managers are expensive - like a minimum of $10k/year for good wealth managers. That’s because wealth managers are still for the most part human, and humans can’t be scaled like an app.
That’s unfortunate because there are a lot of people that can use some help, but paying for a full wealth manager is both unaffordable and unnecessary.
In order to put together a DIY wealth management plan, you need two things: 1) knowledge on how to manage wealth and 2) tools that will help you do it.
Let’s start with tools first. There has been an explosion of new companies offering digital tools to manage your finances - everything from budgeting, to investing, to planning for retirement. Financial wellness is big with employers right now, and more and more and looking for innovative tools to help their employees.
BrightPlan is the financial wellness company I am associated with, and I’m on calls with the biggest companies in the world every week that are interested in learning more about helping their employees. AYCO (Goldman Sachs), Origin, and Northstar are examples of other companies offering financial wellness. The more companies in financial wellness the better - competition encourages better products, lowers cost, and increases reach.
In my opinion, knowledge is harder to obtain because financial education is still lagging. Financial literacy is not part of the K-12 curriculum, nor is it a required class in college. It’s also difficult to find a class that covers all the fundamental areas of wealth management, from budgeting to investing, taxes, estate planning, and risk management (insurance).
Hence I decided to launch a one month, cohort-based workshop that will cover all the basics, using my 10+ years as a wealth manager and now 4+ years teaching personal finance for aspiring wealth managers at UC Berkeley Ext.
The biggest challenge of a personal finance workshop is providing information that is pertinent to each individual, so enrollment will be limited to make it as personal as possible. The course will be designed not just to provide the basic knowledge to manage your finances, but also the tools needed to implement the plan as you go. We will be taking actionable steps so that by the end of the workshop, you feel financially confident with your finances in order and a plan for the future.
The first cohort is scheduled for late April.
More information on the hellogoodplace workshop coming soon!
To being in a good place,
Daniel