How to Find the Best Financial Planner for You

My husband and I were on the hunt for a financial planner for years.  We started out using one at our local credit union, but that one seemed to talk (and talk, and talk) more than he liked to invest.  Every time we saw him, the visit would last well over an hour as he chatted about everything under the sun, except investing.  When our investments with him remained stagnant over a two year period, we decided to move on.

Over several years, we interviewed several different financial planners and received either terrible advice (like investing all of our rollover retirement money in an annuity despite our relative youth) or didn’t feel comfortable with the planner.  Finally, last summer, we found a financial planner who gave his advice based on our unique situation and the goals that we have.  All our hard work searching for a planner finally paid off!

If you’re searching for a good financial planner, here are some things you might want to ask yourself:

Best financial plannerDoes the planner come recommended? Stumbling upon a good financial advisor independently may be possible, but our planner came highly recommended from several people in our neighborhood.  In fact, one had been working with him for over 10 years!

Does the planner give advice based on your own financial situation? Some planners have stock and trade investment advice that they never deviate from regardless of your situation.  (Think of how Dave Ramsey always gives the same advice regardless of the caller’s unique situation.)

Ironically, one thing that made us go with our current financial advisor is that he disregarded the traditional advice that one should NEVER take money out of a retirement account to pay off debt.  Because we couldn’t seem to get out from under our debt no matter how gazelle intense we were, our advisor recommended that we pull out enough to pay off the debt in full.

Doing so was scary, but he was right–the tax implications were not as terrible as we had thought and being free of that debt gave us energy and confidence to achieve our financial goals including adding to our retirement every month and creating a good size emergency fund.

Is the financial advisor a teacher? Of course, I don’t mean teacher in the traditional sense, but does he take the time to explain why he is recommending specific actions?  Does he want you to understand basic investments so you feel more comfortable with his advice?

Our first planner never did this, and we were quite clueless about why he made the financial investments he did.  Our current planner will take the time to explain, and if necessary, explain again until we understand why he is suggesting the investments he is suggesting.

What are the planner’s credentials? Every planner should have some initials after his or her name.  Look these up on the web to see what obtaining them entails.  CNN Money suggests, “The ones you want to look for are the ones that take a significant amount of time and expertise to master before the designation is awarded.  These include the CFP (certified financial planner), the PFS (personal financial specialist) and the CFA (chartered financial analyst).”

How is the planner paid? There are several ways planners can be paid, but in general, be cautious with those who are paid on commission based on what products they sell to you.  While there are honest planners paid on commission that care about you and your interests, many are interested in selling the product with the fattest commission regardless of whether that product benefits you or not.

Do you use a financial planner?  If so, what criteria did you use to find the planner?

How to Protect Your Investments in an Unstable National Economy

The U.S. economic downturn of 2008 caused investment losses for many, leaving everyone unsure about economic instability. You may wonder how you can keep your investments safe in an unstable national economy. Educating yourself, seeking unique opportunities, avoiding staying too liquid, employing defensive stocks, keeping selling separate from buying, and considering commodities are several ways to keep your investments safe.

Paper with Financials

Image via Flickr by Andreas Poike

Educate Yourself

Proper education is critical for both the investor’s comfort level and investment success. Just as the housing bubble contributed to the Great Recession of 2008, future bubbles could threaten your investments. Recognizing the characteristics of a bubble could help you get out of risky investments. While there is no one formula for determining whether an industry is in a bubble, businesses with small revenues with large market caps should cause concern. Understand that industry bubbles have large-scale impacts on the entire economy.

Understanding other economic indicators is helpful for proper investment selection. Fisher Investments supports investor education. Their YouTube videos about investing outlooks and education offer insight on ways to make the best financial decisions.

Seek Unique Investing Opportunities

Everyone knows that diversifying your investments is a great way to protect them from volatility. However, are you considering unique opportunities? Peer-to-peer lending is unique and can provide an additional investment strategy to keep you protected during an unstable economy. These loans are higher risk because they involve unsecured loans to individuals, but the lending platforms generally bundle loans to decrease the risk of failure. Depending on the loan you choose and your risk level, these can have attractive returns.

Invest for Your Timeline

Your response to economic instability should relate directly to where you are in your investment timeline. If you are close to retirement, you are investing conservatively to protect your assets. However, if you are early in your investing, economic instability should have less bearing on your longterm goals as the ups and downs will level out over time. Continue to exercise caution in an unstable economy but be comfortable taking risks as long as you are comfortable with losing that investment. In a long-term investing strategy, you have time to recuperate any losses from risky investments.

Avoid Staying Too Liquid

In an unstable economy, keeping cash on hand might be tempting. While it is good to keep some cash, too much cash prevents you from enjoying market returns. In an unstable economy, increase cash but do so modestly. This allows for a balance between having a safety net and benefitting from market growth.

Stacks of Money

Image via Flickr by vxla

Employ Defensive Stocks

Defensive stocks are from sectors that stay consistent despite the economy. Examples of sectors with defensive stocks include healthcare, food companies, utilities, and consumer staples. If another economic downturn occurs, these stocks continue to offer growth. The downside is that these lower risk stocks offer less lucrative returns. Use a diversity model consistent with your investing goals when adding defensive stocks.

Keep Selling Separate from Buying

While common practice tells you to always buy more stocks when you sell, this is not always the best move in an unstable economy. By sticking to the rule that you should only sell when you have something else you want to buy, you may miss opportunities to sell your stocks at their best price. Instead, when your stock hits its target price, sell. You will have other opportunities to buy stocks that align best with your investing goals.

Consider Commodities

Commodities are a possible option for keeping your investments protected. If an unstable economy begins to drive up inflation, people will still need to purchase commodities. A diverse portfolio with commodities allows you to capitalize on this. Because commodities present greater risk, buy according to your investment goals.

There is no foolproof plan for keeping your investments safe during an unstable economy. Incorporate these tips into your investments so that they align with your level of risk and comfort. These steps can lead you towards a better-protected portfolio. What are some other ways to protect your investments in a shaky economy?

Lending Club Returns Update 4Q13

Another quarter has come and gone, so it’s time for an update on the Lending Club returns I’ve been getting on my account.  At the end of the third quarter, my account was sitting at a return rate of 14.69%.  It’s actually improved a bit since then, but Lending Club has also added the ability to adjust the displayed NAR, which does some funny stuff (see below) and reduces the rate a bit.  I think that’s a good thing (again, see below) and that’s the rate I’ll likely be using for future updates.

Lending Club Adjusted NAR

A few months back, Lending Club introduced what they’re calling an adjusted NAR.  Basically, it uses the historical charge off rates of loans at the different stages of delinquency.  Obviously, the current loans have a historical rate of charge off of 0%.  Once they go into the Grace Period, about 23%, 16-30 days late, about 49%, 31-120 days late, about 72%, and in full default, about 86%.Beating Broke Lending Club Update

As an example, my portfolio currently has two notes that are in the 31-120 days late category.  So, when Lending Club is adjusting my NAR, they use the 72% figure and assume that 72% of the principle will be lost.  Using that number, they then calculate the new, adjusted NAR.  With the two notes late, my adjusted NAR is currently showing as 13.16%.  Still a very healthy number, and likely a more realistic number.  I like the new adjustment, as it should give investors a more realistic number to look at.

Lending Club Defaults and Late Notes

As I mentioned above, my portfolio currently has two notes that are 31-120 days delinquent.  And, if you go by the historical numbers, those two notes have about a 72% chance of eventually going into collections.  I’ve been lucky enough to only have had one note actually go that far to date, and the collection agency was able to get a bit of that money back for me.  It wasn’t the entire amount owed, but a significant portion of the principle, which I was happy for.  I could try and sell off the two delinquent notes, but at this point, I wouldn’t get much out of them, so I think I’ll just ride them out and see what happens.  The total principle involved is only about $35, so it would mean about a month and a half of lost interest payments.  That’s a risk I’m willing to take.

The Future of My Portfolio

With the rates I’m getting, I don’t foresee stopping my investing through Lending Club.  I may even start putting some more money into the account sometime in the future.  At the moment, I’m content to just leave it and reinvest the payments each month.  I’ve seen a few other investors that have either significantly changed how they’re using Lending Club, or have begun backing out of it altogether.  I think it’s something that you need to be able to change how you do it, but I also believe that backing out altogether is a mistake at this point.  The technology is still relatively new, and many of the changes that we’re seeing Lending Club make have been for the better.

I’ve created a page that consolidates all of the posts I’ve done on Lending Club, as well as the quarterly updates since I began doing them.  If you’re interested in starting to invest in Lending Club, you can read more on my Lending Club page, or you can sign up for an account and give it a go.