Conferences for Women Take Control of Your Financial Future Speaker: Manisha Thakor Host: Karen Breslau Karen: Welcome to the Conference For Women Teleclass: Take Control Of Your Financial Future. Our guest today is Manisha Thakor, director of Wealth Strategies for Women at Buckingham and the BAM Alliance, a community of more than 140 independent and registered investment advisors with $25 billion in assets under advisement. She is also the co-author of two critically acclaimed personal finance books, “On My Own Two Feet: A Modern Girl's Guide to Personal Finance” and “Get Financially Naked: How To Talk Money With Your Honey.” Connect with Manisha at MoneyZen.com. We'll be sharing highlights from today's call on Twitter. You can follow along and join the conversation @PennWomen, @TexasWomen, @MassWomen and in California at #LeadOnCa. A reminder, today's class will be available as a podcast on your conference website. To download slides from today's presentation, please check the conference website. Under the 'Online Events' tab, you'll see the post for today's class and a link to slides. Now, Manisha Thakor, welcome to the Conference For Women Teleclass. Manisha: Great to be here. I'm going to be speaking off a deck of slides today. As we go along, I'll be sure to point out which slide that I am on. For anybody who is not a fan of PowerPoint, I'm also going to speak in such a manner that if you just want to listen and not look at the slides, you're welcome to do that as well. Without further ado, the topic of my talk here today is five decisions that can make or break your investment portfolio. The reason I am so excited to be talking to you about this can be seen on Slide #2. I've been working in financial services for over 20 years. What I found is that across the country, no matter how old we are or what industries we work in, whether we work in the home or we work outside of the home, across income spectrums, geographic lines, we have a remarkable propensity to worry about the same things. What I found is most people want to know, “Will I have enough money to live the financial life that makes my heart sing today, to feel financially calm and confident in the future and to leave a legacy for the people and the causes that I care about.” You might think, given that we share so tightly in these broad buckets, a desire to enjoy today, be prepared for tomorrow and take care of the causes and people we really care about, that this will be straight-forward thing for us to do, but it isn't. If you turn to Slide #3, what I have found going across the country is most of us, no matter how much education we have, when it comes to this one particular topic of personal finance, find yourselves often twisted up in a knot. There are three reasons I have found for this. The first is that personal finance and particularly investing can feel like you're speaking this completely foreign language with strange acronyms, EBITDA, PE ration, ETF, basis points, all the terminology. Secondarily, it can feel like this really massive body of knowledge to tackle. Most women I talk to today tell me they just feel crazy busy trying to keep everything going in their lives. Money is such an important topic; they often tell me they feel they don't want to make a decision until they really have clarity on the information. There just seems to be so much. It's hard to know where to start. Then the third reason and the one people often don't like to talk about, but the truth is getting professional financial advice can often feel like you're going to buy a used car. You often get this kind of sinking feeling of, “Who's taking advantage of me? Am I going to be taken for a ride?” The backdrop is that most of us want the same broad goals. Across this nation, I have found that most of us are gummed up for these three reasons; it feels like a foreign language, it's this massive body of knowledge to tackle and we're not really sure who to trust. The good news is on Slide #4, you'll see a sketch from a friend of mine named Carl Richards who is known as a sketch guy. He writes in the New York Times. This sketch is his iconic piece of work. It's the in-section of two circles, one that's labeled “things that matter” and the other that's labeled “things you can control.” The inner section of what you should focus on. In investing, in particular, there are so many things that you can't control. Interestingly, there are also so many things that don't matter. If you can hone in on the intersection of what matters and what you can control and just focus on that, it simplifies your life dramatically and narrows the universe of information that you need to get your head around to something that's actually manageable. What are these factors that you should focus on? For those of you who just joined, you can download this slide. We're speaking to a group of slides by going to the conference website. You can go to the “Online Events” tab. There on the conference website, on the “Online Events” tab; you'll see a post about today's class and a link to download the slides. We're on Slide #5 right now. There are five key factors that really drive the bulk of your investment results over the course of your life. Your behavior, your asset allocation, your diversification, how attentive you are to minimizing fees and taxes and whether or not, if you're seeking professional advice, you're getting it under a fiduciary standard. I'm going to walk you through each of these five steps. The first one I'm going to speak to you on is on Slide #6, Behavior. The way I'd like to think, there's two different styles of investing. To me, the simplest way to think about it, it's like there are two different ways to drive. Some people like to drive in the left lane and they like to weave in and out of traffic and try and find that incremental opportunity to get ahead of the next car. Other people prefer to stay in the right lane, have their seat belt on, go the speed limit. What's fascinating and frustrating is that nine times out of ten, what happens when you're driving, the person in the left lane gets to the red light at the same time as the person in the right lane. Yet, one person had a much different ride. The person in the left lane, their heart's beating fast. They've got sweaty armpits, and the person in the right lane is calm and collected. This is probably the most important thing that I'm going to share with you on this call. In investing, it works the same way. The investment version of driving in the left lane is something called “active investing.” The investment version of driving in the right lane is something that's called index investing, passive investing or evidence-based investing. Most of the dialog you hear about in the financial news is discussing left lane investing because, just like left lane driving, there's more to talk about. The key thing I want you to know is you have a choice. You can choose to drive in the right lane. On Slide #7, I'll show you another drawing by Carl Richards that highlights one of the great benefits of driving in the right lane. The bar on the left on Page #7 shows the average return that an investor will get over any broad time period. Studies have done this over rolling 10-year, 20-year, 30-year periods. The results are remarkably consistent. Let's just say we're looking at a 30-year period. The bar on the right represents the market, as a whole, what you would have done if you had just invested in the entire marketplace, say, owned what's called the SNP-500. Over the last 30 years, the SNP has generated a return, roughly speaking; let's call it 10-11 percent. The average investor has gotten a return closer to four percent. The reason for that huge difference between what the investor could have gotten, what they did get was what's called the behavior gap. It's the delta that comes from trying to drive in the left lane. If you flip to Chart #8, you'll see why this happens. On Slide #8, you'll see a series of bars. The bar on the left represents the SNP-500, which is just a broad basket of 500 big companies. What you can see is over the past 43 years, over that 43-year period, the market, as a whole, generated a return of 10.4 percent. If you go over to the right on Slide #8, all the way over to the right, the last orange bar says, “What will happen if you missed the best 25 single days in the market, just 25 days out of the 43-year period?” That means the best 25 days out of 11,000 possible trading days, your return, as you can see, visually drops dramatically. You have less than 60 percent of what you would have had. That's just missing the best 25 days. The big point that I want to highlight here is when it comes to investing, often times, the best mantra you can have is, “Don't just do something, stand there,” that there's a real power in driving in the right lane. Second of the five points, and I'll go through the rest of these in a little less detail. That first point really was the main takeaway from this call. The second point is what's called asset allocation. Continuing with our driving analogy, on Slide #9, and I just want to take a break for anybody who joined us. If you're just joining us and you want to get this slide, you can download them by going to the conference website. Go to the “Online Events” tab. On the conference website, at the Online Events tab, you'll see a post about today’s' class and a link there to download the slides. On Slide #9, you see a picture of a brake and a gas pedal and a car. Why do I have this? Because in investing, you're basic options boil down to stocks and bonds. I think about stocks, which are pieces of ownership of underlying business, as a lot like pushing on the gas pedal in a car. You own stocks because you want to move forward. If you only own stocks, you'll run out of control. You need a brake to have a little bit of buffer. The other type of investment that's available to you are called bonds. Sometimes, people call them fixed income. They're loans to governments or corporations. You earn interest during the period of the loan. If the entity doesn't go bankrupt during the period of the loan, at the end of that period, you get your principal back. I think about bonds as the brake in a car. How much you would use the gas pedal versus the brake in your car depends on where you're going. It's the same thing in your investment portfolio. The right mix between stocks and bonds depends upon the train you're traversing and where you're heading. The most powerful rule of thumb I can leave you with to let you know if you're on target or not is 110 minus your age. One hundred, ten minus your age gives you a number that represents the percent of your portfolio that makes sense to think about having in stock. For instance, I'm 45 years old. If we subtract 110 minus 45, we get 65. At my age, 65 percent in stocks could be a reasonable starting point. You can dial it up or dial it down. If the percentage of your overall investments is dramatically different than that 110 minus your age formula, that's a find that you want to make sure you know why and you agree with the reason why it's very different. These two things I've just talked about, which lane you want to drive in, left lane or right lane, whether you're using active investment or passive/evidence-based index investing and how much you choose to put on the gas and the brakes in stocks and bonds, those two decisions alone will drive probably 80 percent of your results. While investing can seem complex, if you make decisions you’re comfortable on those two points, you're 80 percent of the way home. The next three points – let me move to Slide #10. Diversification is probably a concept that you've heard a lot about. Many people say, “Don't put all your eggs in one basket.” I want to switch gears and move from talking about cars to fuel. Instead of gas for our cars, I want to talk about fuel for our bodies. One of the things that's fascinating about the financial services industry is that many of the products that are out there are sort of the financial equivalent of junk food. Junk food is high in calories and low in nutritional content. Financial junk food is very high in fees and very low in results. Just like many of now are trying to put more nutrients into our bodies, the purpose of proper diversification in a portfolio is to really make sure that you don't have financial junk food going into your portfolio. You have high-quality nutrition. There are two ways that you can own investments in your portfolio. One is owning individual securities, out-right stocks in an individual company or individual bond. The other way is through owning mutual funds. On Slide #10, you'll see a picture of various different green vegetables. You'll see a glass of a green smoothie. Owning the individual securities, a share of Google, a bond in your local electric company, that's like eating and individual piece of cucumber or broccoli. That can be very good, but to have a more widespread array of nutrition, what do many of do these days? We drink a smoothie. The financial version of a smoothie is something called the mutual fund. Mutual funds come in different varieties. You can have mutual funds that are in the left lane that are active and mutual funds that are in the right lane. Broadly speaking for most people, until you have the pleasant problem of having $500,000 or more of investable assets, for most people, I argue that financial smoothies are the way to go in both your stocks and your bonds. Above $500,000 in assets, if that's the situation that you are in, it can make sense to own individual bonds. I still think financial smoothies are the way to go. The ones I like have names like index funds and target-date retirement funds. That’s' diversification. Slide #11 is about the force point, the thing that you can control, which are fees and taxes. On Slide #11, what you'll see are three different lines reflecting a portfolio over a 30-year time period that had three different fees charged. One portfolio had the typical one percent fee. Another portfolio had a two percent fee. The third portfolio was being charged a three percent fee. What you can see is there is a dramatic reduction reflected by each incremental one percent in fees. Another way to say this is over a 30-year period, for each incremental one percent that you pay in fees, you will be giving away, roughly, 20 percent of your ending portfolio. I want to say that again. For each incremental, additional one percent in fees that you pay, you are essentially giving away 20 percent of your end portfolio. While you may think from looking at the financial news that the most important thing you can do is figure out which is going to be the next hot stop, which is going to be the next Tesla or Twitter. From an investment standpoint, you will get a much more dramatic bang for your buck by taking a look at your investments and trying to, if you find yourself, like many people, in a situation where you're paying two or three percent fees all-in when everything is included, getting your fees down to one percent. I'll just say, very briefly, what are the kinds of fees. The financial services industry does not make it easy. Fees can come in a couple of different flavors. A common one is a percent of assets under managements, which is generally the base-level fee. On top of that, there can be fees associated with the investments that go into your portfolio either a management fee for funds or transaction fees for individual securities. Then, there can be commissions. There's a special type of commission called a 'load' that can sometimes be charged. Then, there's something called fixed income markups. What the specific fees are aren't as important as knowing this. You have a right to ask anyone who's giving you financial advise, “What will my all-in fees be?” You want to make sure that they are breaking out all the different level of fees so that you have a clear understanding. Any quality advisor will be happy to answer that question for you. Moving on to Slide #12, the last of the five points is one that many people aren't aware of. In the financial services industry, there are two different standards to which financial advisors can be held to. It's not like the medical industry where everybody has to take the Hippocratic oath. In the financial services industry, roughly, 80 percent of advisors are currently held to what's called the [unintelligible 00:19:49] are held to the [unintelligible 00:19:52] standard. What a difference. [Unintelligible 00:19:55] advisors suitable for you but not necessarily in your best interest. It would be like going to a doctor whose practice is funded by large, pharmaceutical Company A and who gets a bonus every time they write a prescription for one of pharmaceutical Company A's drugs, and the doctor doesn't have to tell you that that's the cost structure. You go see that doctor for your allergies and the drug that works the best for your body comes from pharmaceutical Company B, but you're not even prescribed that. You're prescribed “A” because it's good enough. It's suitable. That's how most of the industry works. There is legislation in play right now to try and enforce the other standard, which is called fiduciary, which means the advisor has a legal requirement to put your interests first. There is legislation in Washington pending to try and make that the standard for the whole industry. In the inter-on, the way you protect yourself is to always ask your advisor when you're interviewing, “Are you held to the suitability or the fiduciary standard?” Those are the five big points. If you turn to Slide #13, you'll see a quote. It says, “Focus on what matters and what you can control.” That's really the point that I want to wrap on, which is that investing can feel incredibly overwhelming. Most of us receive no formal education in how to invest. We pick it up from what we hear from friends and co-workers and in the news. A lot of that information is just flat wrong. The vast majority of your investment returns will come from five simple factors. Whether you choose to drive in the right or left lane, whether you make smart decisions on how much pressure you’ve got on the gas versus the brakes, your asset allocation, your mix between stocks and bonds, how good a job you do at diversifying and making sure you've got nutritionally dense financial products, things that are low in fees and high in results, keeping your fees low by being very clear and understanding exactly what fees you're paying. I personally believe that it's best to work with an advisor who operates under the fiduciary standards. I have friends that work under the suitability standard. They are good people. It's just that their firms have a different kind of business structure. If you're working with somebody under suitability, you just want to make sure that you’re aware of the business model. Those five factors, if you start there, you are going to be ahead of the vast majority of people. Those are the five key decisions that you can control and that can make or break your portfolio. On Slide #14, I've got my social media contacts if anybody wants to reach out on Twitter or Facebook or LinkedIn or Pinterest. As Karen mentioned, my website is MoneyZen.com. I always love to hear from women. With that, let me turn it over to Karen and see if we have any questions. Karen: Thank you so much, Manisha. We do have questions. That was all fascinating. I think one of the most common questions people have is how much money do you need to have in your investments before it makes sense to get professional financial advise? Manisha: To me, it's a lot like asking, “How long do my nails need to grow before I get a salon manicure or do it myself?” It really, at any level, it can be appropriate at absolutely any level. The problem is the way the industry charges, it isn't always user-friendly for those who are just starting out. Generally speaking or historically speaking, a lot of the big firms had a minimum of $500,000 or more in order to get financial advice. Technology is changing that today. There are a wide range of services online where can get financial help at a broad range of price points. Increasingly, companies are shifting as well. For instance, I work for Buckingham. We work with individuals, anyone with $80,000 or more in investable assets; we're delighted to work with. Part of the BAM Alliance community of 140 managers who all drive in the right lane, we work with a very wide range. There are other online options. You can take a look at LearnVest. You can take a look at Wealthfront, at Betterment. You can also reach out to hourly, fee-based financial planners through Naphtha or Garrett Planning Network. I list these resources on my website on MoneyZen.com on the “Resource” tab as well. The key thing I want to say is there really is no level at which it's too small to be seeking guidance. The key is to find a firm whose business model is targeted at somebody of your income and asset levels. Karen: Great. How can you tell, if you're shopping for an advisor – that used car scenario really resonated with me and maybe with many others – how can you tell if an advisor is really qualified to give you advice or is just a sales person in a fancy suit? Manisha: I think that there are two key questions to ask people. One is, “How do you see your job? What do you think your job is?” The answer that I like to hear back from an advisor to a client is my job is, “To be your financial, general practitioner. What I want to do is help you understand how much you need to be saving and how much you can comfortable afford to spend at this stage in your life.” “I want to help you then create the right portfolio around your circumstances, and I want to make sure you have a clear understanding of how you get on track to be able to retire comfortably. I want to help you with the advanced planning needs. I want to make sure that you're thinking smartly about risk management, which is the fancy term for insurance that you're thinking smartly about estate planning, that you're thinking smartly about taxes. I want to help you with that whole picture, and I am not wedded to any individual product. I'm interested in helping you get those answers.” That, to me, is the ideal answer that you get back. The second question is, “How do you get paid?” I find that advisors who deliver what I described in the answer to question #1 generally are excited to talk about their fee structure because they know how much value they're brining to you. I find that when you ask those two questions, you tend to weed out very quickly the people who really have just one product they're trying to sell you no matter what your financial issue is. They're going to tell you, “This product will solve it.” Karen: Here's an interesting question; what is the biggest financial mistake that you ever made personally? Manisha: Without a doubt, it is I spent the first 15+ years of my professional life driving in the investment left lane. I cannot tell you how many hours I spent as a professional investor pouring over earnings reports, pouring over company announcements, monitoring the financial news, literally, 24/7. My results have been so much better since I moved over to the right lane, and I have my life back. I'm really on a mission to let people know even though that's what you hear about on TV, if you're interested in driving in the left lane, great, but many of us are not. We want our money to work for us. We don't want to be pouring hours into it. I wish I had discovered that before I hit my 40s. Karen: We have time for one more question. That is if you could recommend some books to read about investing. Manisha: Sure. My two favorite – actually, I have three favorite investing books. The first one is called “A Random Walk Guide To Investing.” “The Random Walk Guide to Investing” was written by Burton Malkiel, professor at Princeton. Another one I absolutely adore is called “Think, Act and Invest Like Warren Buffet.” That book is written by my colleague, Larry Swedroe. The other book I love is called “The Investment Answer” by Dan Goldie and Gordon Moran. All three of those books short, tight, concise and easy to read without jargon. Karen: Wonderful. We should mention that if people want to connect with you, Manisha, they can go to MoneyZen.com. That's all we have time for today. If you registered for this call through Eventbrite, you will automatically receive an email telling you when the podcast of today's class is available online. You can also, if you want to take a little more time and go over those slides, you can go to your conference website. Go to the “Online Events” tab where you will see a post for today's class and a link to the slides. Thank you, Manisha Thakor, and thanks to all of our audience for listening to today's teleclass.