Do not let your emotions get in the way of making smart investment decisions.

It is difficult to separate emotions from reality. We often view the world through the lens of whatever emotion we are experiencing, and unchecked emotions can give rise to suboptimal financial decisions.

My role as a financial advisor allows me to have many conversations focused around money. Through these conversations over the last 12 months, I have witnessed the gambit of the emotional response to the stock market and its volatility. What I discovered is that an individual’s emotional response tends to be heightened by three things:

1. The more zeros at the end of their account balance.

2. The amount of negative news consumed.

3. The greatest of which, whether they have taken the time to build a financial plan.

In his book The Behavioral Investor, psychologist and behavioral finance expert, Dr. Daniel Crosby reminds us that our emotions can’t be trusted when it comes to making investment decisions.

“The fact that your brain becomes more risk-seeking in bull markets and more conservative in bear markets means that you are neurologically predisposed to violate the first rule of investing, “buy low and sell high.” Our flawed brain leads us to subjectively experience low levels of risk when risk is actually quite high, a concept that Howard Marks refers to as the “perversity of risk.” – Dr. Daniel Crosby

Like the stock market, our emotions are cyclical. This cycle of emotions experienced as an investor can range from pure euphoria to utter despondency (lack of hope).

Source: Russell Investments

This emotion is often not dictated by the investor, rather it is the investor’s response to the market. The wild thing is, we have seemingly experienced all of these emotions over the last 12-month period. Compare the cycle of emotion to the S&P 500 over the last year.

Is it a coincidence that these two images almost mirror each other? I don’t think so.

It is completely normal to have an emotional reaction to your finances. Your account balances are often in direct relationship to your future financial freedom and well-being. However, it is only when an investor acts on these emotions do they get themselves in trouble.

Investor’s making short term emotional changes to their investments hurt their chances at long-term returns. A study conducted by DALBAR, Inc. discovered that over the last 30 years, the average mutual fund investor underperformed the market by almost 6%! Their finding is that investor’s change investment strategies too often to realize the inherent market rates of return.

Here are some action steps for avoiding emotional investment decisions:

• Look inward — Take an introspective look to acknowledge your emotional response over the last 12-month market cycle. Will you emotionally make it through another market drop? Right now is the time to build self-awareness, because the reality of the market is not IF it will have another correction, but rather WHEN.

• Look outward — Do you have someone to help you make wise financial decisions throughout life’s many emotions and seasons? Someone, to stand between your emotions and your finances? This is one of the many ways a financial advisor can add value to your comprehensive financial well-being.

• Look forward — Does your risk profile align with your financial plan? Are you taking on too much risk (or, too little)? Take some time today to review your holistic investment strategy and consider making any changes while the market has rebounded since its market low on March 23rd.

Our team at Human Investing realizes your family’s financial well-being is just as much “human” as it is “investing”. Let us know how we can help, contact us at Human Investing or call at 503.905.3100.

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Through the end of 2019 and dating back 20 years, the S&P 500 returned 6.1%, as described in Table 1 below. During that same time period, a balanced account consisting of 60% stocks and 40% bonds returned 5.6%, while the “average investor” returned just 2.5%.

Table 1

The “average investor”, according to JP Morgan and Dallbar, is any investor investing in mutual funds. The report shows the flow of mutual fund buying and selling. The use of mutual funds is the best way to perform a field experiment and infer approximate returns for those buying and selling mutual funds. 

It is implied that those buying mutual funds are more individuals, households, and smaller institutions. Larger institutional clients typically own the investments directly.

So, what’s the deal with the average investor returns?

Why don’t more people invest 100% of their money into the S&P 500 or something similar? The short answer is that while any investor can put their money into the S&P 500, few are able to hold through the ups and downs.

Table 2

Looking at Table 2 (using the same 20-year time period), the S&P 500 has seen intra-year drops, that were on average nearly 14%. Investors owning just the S&P 500 would have had to hold tight over those 20 years to achieve the 6.1% return, which is easier said than done. To be sure, there is so much that goes into selecting an allocation for a portfolio. But given the times we are in, I thought it would be useful to lay out a framework for successful investing.

1. Diversify — In my nearly 24 years of advising clients, I have seen just a few that have been 100% invested in equities. Since 1950, the average all-stock portfolio return was a little over 11%. Interestingly, a 50% stock and 50% bond portfolio for that same period yielded just under 9%. Although an investor may not have the temperament for an all-stock portfolio experience (because of the volatility described in Table 2), they can still save and invest. Through a balanced portfolio, investors can experience a fraction of the expected volatility while still achieving solid returns.

2. Plan — It baffles me that so many investors focus on the return of the stock market. From my point of view, the only number that should matter is the return an investor needs to achieve their stated goals. Recently, we ran planning calculations for a client that needed 5.5% returns to make all of her financial goals come to fruition. Since working with Human Investing, she has achieved a 6% net return, allowing her to achieve all of her goals. Investors are best off spending time developing a plan and then building a diversified portfolio to achieve those plans. 

3. Stay in the market — Since your financial plan serves as your road map to achieve your financial goals, it is imperative to stick to the plan. Following the plan means staying invested even when the world appears to be falling apart. But, what if you decide not to follow the plan and get out of the market? It may not be so much about the getting out of the market but about getting back in. Table three describes the negative impact of market timing. Although market timing can be costly, the greater challenge may be the decision on when to get back into the market.

4. Investing is forever — Successful investors have a forever time frame they measure in a lifetime, not a day. The accelerating adoption of day trading, market timing, and other gambling-like tendencies go against everything I have ever read and learned about successful investing. Take, for example, Warren Buffett, whom many consider the greatest investor of our generation. He has amassed 95% of his wealth after the age of 65. Although I would place Buffett near the top of the list as the greatest investor of our generation, a key contributor to his wealth accumulation has been the length of time he has spent investing. This is a crucial lesson for those who look to get rich quickly and bypass the hard work of saving and investing over a lifetime.

Table 3

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Since Human Investing has shifted to remote work for 5 months, I wanted to peek into what daily life looks like for two of our fabulous and industrious moms. Shelly Chase and Eve Bell are candid, funny, and share some family tips!

JILL: Shelly, you are a seasoned Client Service Specialist, so how has it been working remote these past 4 months while managing your work and your family?

SHELLY: Multi-tasking is key! I’m never far from my computer while working from home, and when the “ding” comes in for an email or message (if I’m not right in front of it), it’s a sprint back to the computer so I don’t miss anything and reply in a timely manner. Of course, I sometimes trip over the dog….

JILL: That is a funny image! I’m sure all dogs—yours included—are wondering why we’re all home, and if it means they get more snacks. Eve, as our Workplace Advisory Administrator and young mom, you have also had a lot going on. What was your before- and after-work routine with your young daughter prior to COVID, and how has that changed?

EVE: Pre-COVID our nanny picked up our daughter every morning, and my husband and I took turns picking her up after work. We were in for a shock when we all went remote on March 15th. Having an active little toddler means my husband and I are re-evaluating routines every few weeks and upping our communication game. Our almost 2-year-old is home most days, so we have to communicate A LOT about our meeting and project schedules, work together to make adjustments, and have at least one parent watching out at all times, so that our toddler isn’t having a tea party with the dog’s food and water.

JILL: What a full plate, Eve! How long did you think you would be working remotely? I would love to hear your initial thoughts.

EVE: I thought it was only going to be for two or three weeks! I knew it was going to be a challenge, but I Pinterest-ed all the DIY toddler activities and bought a two-week supply of snacks (for both my baby and me).

SHELLY: I kept thinking how can I work from home and stay focused….kids’ noise, dog barking, FedEx knocking…how can I work from the dining room and keep my home life under control while serving our clients?

JILL: Let me say you each have done an incredible job and probably did not realize just how much strength you had within you to manage it all.Shelly, with summer in full swing and school on the horizon, how are you working through the options for schooling and what is top priority?

SHELLY: The top priority is what is best for my almost sophomore son. He did okay with ending the school year online, but it did take a lot of coaxing from mom to keep him on schedule and get his work done. It was recently announced that his school will be online until at least October 30th. I better brush up on my US History facts!

JILL: I really admire you parents; whose kids are in grade school or high school. It’s not an easy feat to work and ensure your child learns new things and retain some of what they have already learned! You have seemed to weather this valiantly but being human, we all know we’ve had moments of struggle. What walls have either of you ‘hit’, what has been the biggest thing you have tackled, and how are you rising above it all?

EVE: The first wall I hit was trying to make a typical 8am to 4pm workday schedule work from the dining room table. Once I recognized that my workday would need to look and feel different, I began adjusting to new routines. As a result, both work and family life got a lot easier to navigate. And then prioritizing! I have had to dig deep, practice more patience, and become laser focused. It has been a funny balance of being super chill about some things (who needs an organized Tupperware drawer anyways) while also pushing myself to strategize and implement new ways to serve clients.

SHELLY: I have been really surprised so far. There has been no dead ends and no walls hit. I have tried to stay focused on doing my best to maintain the same work schedule at home as I did in the office. I am working a bit longer each day since I save time without a commute, but I also have more flexibility. I have grown more confident in my ability to be an earner, mom, maid, cook and as of recent, teacher. I remind myself all day long to take deep breaths and take a little time for myself by walking, listening to my favorite music, or making my homemade salsa.

JILL: Such great, practical advice and wise counsel coming from you both! Thanks for taking time out of your busy days to share your experiences with me. And Shelly, what about that homemade salsa recipe?

SHELLY: I am making it every day now and my family still loves it! It is simple and always delicious. I even think the title fits its appeal. I hope you all try it and add your own flair!

Click here for Shelly’s homemade salsa recipe!

Jill has spent over a decade at Human Investing honing her skills in the areas of service, administration, sales, operations and human resources. As a SHRM certified practitioner, Jill now puts all her past experience to work - ensuring that the Human Investing team is cared for and the operations run smoothly.

Eve helps clients navigate the nuanced and complex landscape of qualified retirement plans by providing plan design expertise and advocating for employers and their employees.

Shelly draws from her 20 years in financial services to uniquely care for clients while meeting the administrative needs of their accounts on a daily basis. She strives to always provide personalized, and honest, and up-to-date client service and plans to continue to love, care and serve our clients for the next 10+ years.

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We recently read the article, "401(k) Plans No Longer Make Much Sense for Savers", published by Bloomberg Opinion. We do not recommend reading it. The fallacy starts with the title.

The author mentions that the “government offered a huge tax savings to encourage retirement savings, while today it offers little or no benefit”. The article compares generalizations about the tax environment in the 1980’s to our lower tax rates today. The author argues that because tax rates are lower today, there are fewer tax benefits for savers in 401(k) plans. That is a half-truth.  

Let's rebut the title and highlight some of the reasons 401()k plans, given today’s tax rates, are indeed beneficial for investors.  

Roth Savings  

We have yet to meet someone who enjoys paying taxes, but we acknowledge that tax rates are lower today than they have been historically. See for yourself.

Rumor has it that Roth accounts are built for young people and those who expect their career earnings to increase in the future. However, it is often strategic for highly compensated people to have some Roth savings as part of their portfolio as well.

However, not all highly compensated individuals are eligible to open a Roth IRA account, but anyone inside a 401(k) plan with a Roth savings option may make contributions. The article failed to mention that because today’s tax rates are lower, there is a compelling reason to make Roth contributions to a 401(k). We believe that Roth savings make more sense than ever. 

Choices 

Regardless of the tax rate environment, 401(k) accounts allow participants to choose when they pay taxes on their contributions. As we know, We the People love choices. 401(k) accounts are different from many other savings accounts because taxes on interest and dividends are paid every year.  

Contribution Limits 

Contribution limits for a 401(k) account are higher than they are for an IRA account. Saving more today means having more later. Plain and simple.  

Dollar-Cost Averaging 

Aside from the financial advantage of Dollar-Cost Averaging, 401(k) accounts alleviate some of the behavioral burden investors face when trying to time the market. Instead of vacillating about when to let go of your hard-earned dollars, 401(k) accounts buy shares in the stock market every single pay-period.  

Credit Protection 

401(k) accounts are safe from lawsuits. These accounts are designed such that only a spouse and the IRS can claim on your savings. While this may seem insignificant, it is beneficial to have some of your assets protected in case of an unpredictable life event.  

STAY INFORMED 

Be skeptical. Get your news from a trusted source. At Human Investing, we are fiduciaries. We share the truth, the whole truth, and nothing but the truth. We operate with a higher standard of service. We are also a B-Corp, which is not a coincidence but rather a certificate that substantiates our values.   

Be informed. This is especially important for your 401(k) fees and the taxes you pay.  

Be proactive. Take advantage of your employee benefits. 401(k) plans make sense for a lot of savers. 

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“Stocks are too risky for me.”

“You shouldn’t invest anything in stocks unless you’re prepared to lose all of it.”

“Investing is just another form of gambling.”

I have heard these concerns and many other reasons why people are nervous about investing, particularly in stocks. The ups and downs of the stock market can be difficult to stomach. This year, we saw one of the fastest drops in history as COVID-19 hit the world. The S&P 500 was down just over 30% from the beginning of 2020. Then stocks rallied back. At the end of July, the S&P 500 was positive for the year 2020. This is a wild ride no matter how you look at it.

The fear of short-term losses in investing is referred to as “myopic loss aversion”. The idea is that the fear of short-term losses scares investors away from riskier assets like stocks. As such, investors tend to invest more conservatively than they should, resulting in lower long-term returns.

Long-term stocks are a wonderful tool to grow your assets above the rate of inflation. Growing your savings and spending power over time is attractive, and for many it is essential to achieve their financial goals. The volatility of stocks along the way? No one looks forward to that. 

How risky are stocks in any given year?

If we look at historical returns for the S&P 500, a curious picture emerges:

Since 1937, the S&P 500 has had a positive return in 63/83 years, or 76% of the time. For reference, that is a solid “C” and a passing grade in any class I have taken.

For example, pretend you put $100 in the stock market on January 1 every year. In years with a positive return (76% of the time), on average you would see that $100 grow by 19.61% to $119.61. In years with a negative return (24% of the time), you would see that $100 shrink by an average of -12.19% to $87.81. Long-term, the odds are in your favor to grow your assets.

Invest with a Stable Foundation

There are certainly risks to owning stocks. It is important to ensure you have an emergency fund  to cover unexpected job loss or life expenses. It is also important to determine how much risk you can handle, both financially & emotionally, so you are not tempted to panic and sell when you see your account balance go down. A financial plan may be helpful to illustrate the dangers of investing too conservatively or too aggressively and may help to determine the risk that makes best sense for you.

If you need help understanding the risks and benefits of investing in equities, please contact our team at Human Investing. 

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Demand for better financial literacy is going up

Financial Literacy is the understanding of financial concepts which guides good money decisions in everyday life.

The backdrop of personal finance is having a structure for how to act. We usually refer to this as a financial plan. A financial plan helps to allocate money, a limited resource (for most of us), to unlimited alternatives.

Financial literacy can help parents make a difference

The United States is the largest economy in the world however, Standard and Poor’s Global Financial Literacy Survey reveals that it is the 14th in the world in Financial Literacy at approximately 57%.

By age 7, most children begin to grasp that money can be exchanged for goods and represent value. For example, understanding that 5 pennies equals 1 nickel, as a University of Cambridge research on “Habit Formation and Learning in Young Children” discovered.  Starting at age 7 or 2nd grade, a child is ready for more instruction and guidance around money concepts. In the same way that children learn language from their parents, they can and do learn money habits from their parents but need exposure and  instructive conversations. Moreover, children need the opportunity to practice with money, or forms of money, that have different representations of value.

Financial literacy can lead to responsible decision making

Parents have the ultimate authority and responsibility to begin educating on financial concepts from a young age. Parents should be aware not to rely on the education system to teach the basics or complexities of personal finance, as it is not required to graduate in many states (ex: Oregon).

To help empower parents with the knowledge and tools to provide a great foundation for personal finance, let us refresh ourselves of the basics of what children can learn and apply early in their formation. Always remember to keep it simple.

Start with an approachable framework

The four basic functions for allocating money is to Spend, Save, Invest, or Give. A guideline to start with is a 30/70 rule: save, give and invest 30% while spending the remaining 70%. To create a basic guideline for our kids (and possibly even ourselves), let’s break each of these functions down.

The heart of giving

Let’s start with giving, since many of us have experienced that if it is not given up front, it may not be given at all. This is important in establishing an altruistic worldview (selfless concern for the wellbeing of others) but also in teaching an abundance mindset (always more to go around) as opposed to a scarcity mindset (only so much and never enough). Giving can immensely impact a child’s desire to be a force for good and help others, which is the foundation for business. When banking a dollar per week from allowance, even with this small amount, it can be a great place to start the heart-healthy habit. Ask your child what they care about and who they would like to help with their giving, it may surprise you.

The necessity of saving

A similar principle will prove necessary for saving. It is much easier to set aside some money prior to spending to ensure you will have something left over when needed. Having adequate savings can keep you from being subject to predatory lending or missing out on an opportunity. It is equally important to help kids understand that saving is not the same as investing. It is important to have money working for you, not just set aside and available to you.

The value of investing

The importance of investing is compounding interest and seeing your hard-earned dollars multiply for you in a way that seems effortless but requires patience and self-control.

Setting money aside to help a child invest in a company like Disney or Nike, something they can tangibly see and enjoy, is a great learning lesson. This could be done through your taxable investment account or in their own UTMA (child’s investing account).

If the former idea is too involved or the money is not available for buying actual shares of companies, consider offering your child a “matching program” when they invest in the “Parent Company”. In the same way, consider offering your child interest (growth) for leaving their savings with you. They may need a greater incentive to understand the concept and value of having their money grow. Based on the child’s age, show them a toy that costs $1 and a toy that costs $10. They could spend their $1 weekly allowance collecting numerous low cost and low value toys, or they could save and potentially even grow their dollars to achieve a valuable toy more quickly. This would help provide the incentive to invest those dollars rather than spend them or even save them.

Lastly, teach the rule of 72. An investment that grows 7% annually will double in just over 10 years (72/7=10.2). An investment that grows by 10% annually will double in just over 7 years (72/10=7.2).

The discipline of spending

A great place to start is needs and wants. How much should be allocated to needs and what is left for wants. A rule of thumb is 50% for needs and 20% for wants. Without a credit card line, this is much easier to do when working on a cash basis. Until kids are old enough to have expenses like cell phone, auto insurance, gas, it will be difficult to break out needs versus wants. Until then, spending will be all one category at 70%. Once the child is a high schooler, they will experience more reasoning between needs and wants. What is left over is available for “fun money”.

It will be important to discuss the topic of credit versus debit as credit cards are a form of debt and borrowing from an institution will have numerous negative effects on saving and investing.

Another concept to teach when considering spending is discounts and coupons. When paying less for a specific item, you have more left over for other items or for saving, investing, or giving. One of the best places to teach this is looking at a specific product at the grocery store (candy bars!) and comparing prices, those on sale and those that are not and the impact of spending less to keep more.

The compounding benefits of financial literacy

Financial literacy, like investing, has compounding benefits especially when starting young. It is invaluable to model and have conversations around money with your children. No need for perfection, but the goal is to make progress and provide opportunities to learn.

This article was inspired from a presentation by Mac Gardner, CFP®, author of “The Four Money Bears”.

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Human Investing is celebrating. Why? We have good news for you. While we’ve always been transparent at Human Investing, the rest of the industry is now required to catch up.

A new rule took effect on June 30th, designed to help provide investors with a transparent look at their investment professionals.

The U.S. Security and Exchange Commission (SEC) enacted the Regulation Best Interest rule which requires all Advisors and Brokers to provide their retail clients with Form CRS (an acronym for Client Relationship Summary).

Our firm has been promoting transparency with our clients for a long time. As a fiduciary, that’s what we stand for. We have experienced transparency leads to greater trust and better results with our clients and within our team. We are now excited to see that the rest of the industry is required to do the same. If you are working with an advisor, or plan to work with an advisor, this impacts news for you.  

The intent of the Form CRS is to address the first PILLAR of the SEC’s three-part mission:

1. Protect investors 

2. Maintain fair, orderly, and efficient markets 

3. Facilitate capital formation 

Regulation Best Interest and Form CRS were created with the intent to help investors protect themselves. Form CRS accomplishes this by requiring advisors to communicate information that an investor should know (e.g. conflicts of interest and how your advisor gets paid) in a clear standardized format. This new rule isn’t a panacea for all industry ills, however, the transparency provided by Form CRS will help investors better educate and protect themselves.   

We also hope that transparency will affect wide change in our industry for the benefit of the investor. The impact of transparency we hope for is described well in Ray Dalio's book Principles.  

"Radical transparency fosters goodness in so many ways for the same reasons that bad things are more likely to take place behind closed doors." - Ray Dalio.  

So, what exactly will you be able to learn about your advisor via Form CRS? 

• The types of services a firm offers — are there services they offer that you aren't receiving?

• The fees and costs you will have to pay for those services — this is especially important because there are many different fee structures

• Conflicts of interest a broker or adviser may have — an estimated $17 billion is spent annually on conflicted advice for retirement savings in the US

• The required standard of conduct associated with the services a firm offers 

• Whether a firm and its financial professionals have reportable legal or disciplinary history

• Key questions to ask your financial professional

Want to learn about your financial advisor? Here is a link to the SEC's search engine of Form CRS - Form CRS Search Engine. See Human Investing’s Form CRS here.

If you have a question about Form CRS or you are interested in having a clear, transparent conversation about your financial plan, please contact us at Human Investing.  We're here to help! 

Sources:

www.investor.gov

https://www.sec.gov/Article/whatwedo.html

https://obamawhitehouse.archives.gov/blog/2015/02/23/effects-conflicted-investment-advice-retirement-savings

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It’s hard to let go of your old car. You know which car I’m talking about. The car with the window taped shut because it doesn’t roll down properly. The car with three paint jobs—each a different shade of green. The car that gets shaky after you reach 65 mph, because it was a hand-me-down from your grandma, who’s max freeway speed is 50 mph. It’s been with you through it all, but when car dealerships start advertising 0% financing and cash-back deals, you might feel yourself loosening your grip.  

Before we dig in, it’s important to acknowledge that even though good deals are currently out there, you may not need an upgrade. And that’s okay! Own your steady, functional car, and avoid instant gratification. However, sometimes things do happen that require an upgrade. Your tape job suddenly malfunctions, and your car window won’t roll up in mid-January. Or your car starts shaking at 50mph on your morning commute instead of 65mph.

When planning for a big expense, whether it’s a car or another large purchase you plan to finance, it’s best to create savings goals. But because life is both expensive and unpredictable, this post aims to discuss ways to finance a large purchase in a smart and efficient way. Here’s your list of action-items:

FOCUS ON WHAT YOU ACTUALLY need

Create a list of your needs (not your wants), and then research your options. If you need a car, what kind of car do you need? Something that can haul large objects, or carry the tiny humans safely? Used or new? Find the total cost of the car that can sufficiently meet all your needs. Avoid any options that may push you outside of your budget. Basically, don’t buy more car than you need.

Decide how to finance the purchase 

If you cannot purchase the expense in full, you have two financing options: (1) a lease or (2) a loan.  

Know that when assessing the total cost of the car, it’s important to leave room for the expense to finance the car through a loan.

1. Lease: When you lease a car, you are paying monthly to use the car. Because this finance option doesn’t lead to car ownership, monthly payments for leases are typically lower than loan payments. However, you will not be able to ever own the car or “pay it off.” Because of this, leases will never be profitable and are best saved for professional purposes if necessary.  

2. Loan: When you borrow an auto loan, you are paying monthly to eventually own the car. There are many loan options depending on your budget, credit score, and timeline. Most loans will have an annual percentage rate (APR). That is, the interest rate you pay on the loan. The APR will vary based on the duration of the loan, your credit score, and where you borrow from. Make sure you shop around to find the best loan that meets your needs. In short, try and find a loan with a low APR and pay it off as quickly as you can. Click here to view Rivermark’s auto loan options.

Calculate the monthly payment

In order to budget for your new expense, you need to know the amount of the monthly payment. Let’s say you want a 2020 Subaru Forester because let’s be real, if you’re a true Oregonian, you’ve thought about getting a Subaru at least once. Using data from their website, here’s the breakdown:  

Find the cost of the car: $24,495 

Pick a Finance term: 48 months

Know the APR based on your credit score: 4.19% 

Calculate the monthly cost of the car, including the APR: 

Ta-dah! Your monthly car payment is estimated to be around $700, making the estimated total cost of the car $33,600.  

Let’s take a moment to catch our breath. I know this seems stressful, but don’t worry. Make sure you are taking care of your credit score and budgeting for the expense. If you take the appropriate and smart steps, you’ll be okay!  

Simulate the payment INTO A MONTHLY BUDGET

Before deciding to finance the car, take three months to see if the monthly payment fits in your budget. Whether it be through automatic transfers or manually setting money aside, try not to house the simulated monthly payment in an account used for spending purposes. If you don’t have a budget, click here for resources to get started. 

This practice will allow you to visualize how your car payment can fit into your budget. You may need to re-allocate dollars in your budget, or you might find you have more wiggle room than you initially thought!  

What are you waiting for? Get the car!

You earned this! You took the smart and appropriate steps to finance your car, so make it happen and create new memories. We are rooting for you.  

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“In this world nothing can be said to be certain except death and taxes” – Benjamin Franklin.

HERE’S A SNAPSHOT OF HISTORICAL TAX RATES

You can compare 2020’s highest marginal income tax rate to years dating back to 1913. Although this chart is not an all-inclusive story about someone’s individual tax situation, it does suggest that overall tax rates are lower today than they have been in the recent past.

How to Take Advantage

The current tax rates are locked until December 31, 2025, unless there is an update to the Tax Cuts and Jobs Act (TCJA). Without a crystal ball, we do not know where tax rates are heading. However, as this image illustrates, we do know tax rates can increase in the future. 

One way to take advantage of today’s low tax rates is to utilize accounts like a Roth IRA or saving Roth inside your 401k plan.

Do you have questions?

We know that interpreting the tax code is an unpleasant and complicated experience. We have a team of CPA’s at Human Investing who are ready to answer any questions you may have.

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“You need to make more money…”

My budget coach and I sat there silent in the face of what seemed like an impossible reality.

For me, and perhaps for some of you, the option to make more money was laughable.  At that life stage, I was in the midst of a financial tornado: our nation’s economy was hung-over from the market crash of 2008, my employer at the time lost a grant that substantially reduced my paycheck, and an unexpected illness and injury lead to weighty bills and rendered additional work next to impossible.

Each month I felt like I was scraping up pennies just to make ends meet – Maybe some of you feel the same today.

Unavoidable realities like a job loss, illness, injury, and accidents are financial burdens that most of us will face at some point in our life.  The support of a funded emergency savings account is a solid way to ease some of the financial blows that come our way.

I am happy to report that, though it took some time and sacrifice, I was able to meet my “impossible” goal to have a funded emergency-savings account, and I would like to share with you some of the helpful tips I learned along the way.

organize where your dollars are going

There is a link between paying attention and success, so consider paying close attention to where your dollars are going.  List all purchases, spending, and expenses for the month and ask: What, When, How Much and Why are dollars leaving my account?  What are the “surprise” expenses?  Take a moment to consider needs vs. wants.

Next, (you may have guessed it—and even groaned) consider making a budget. If you hate dealing with money or do not even know where to start, there is HOPE!  There are many creative ways to budget that do not take a lot of time or effort but help you to pay attention and stay on track.

• If you don’t have a budget consider: YNAB; Mint; Cash Envelope System (or digital); The  50/30/20 method, value-based budget, or unconventional alternatives such as a visa cash card loaded weekly/monthly with your budgeted amount.  I found success with the 50/30/20 method combined with the envelope system.

• If you do have a budget, look closely at the How Much and Why.  Consider setting a goal to check on your spending and expenses once a week and ask:  How am I doing?  What can I change to improve?

Open a Savings Account and Set Goals

This is not just wishful thinking – it is preparing to succeed.  Many financial institutions will allow you to open a savings account simply and easily online.

Here are a few recommended examples for high yield online savings:

• Capital One

• Ally Bank

For most households, an appropriate emergency-savings buffer is three-months of your living expenses.  Write it down.  Take a moment to imagine that amount and how you will feel when you meet your goal.

Set a goal: Ask your employer about directing a portion of your paycheck directly to your savings account.  An alternative is to set monthly, automatic transfers from your checking to your savings account.  It is generally best to have this occur the day after payday to give your funds a day to settle.

Setup auto-deposits: This also may help with large, annual bills.  Take your annual bill and divide it by twelve – this is how much you need to save every month to pay for this bill outright – Plus, you may actually save money when you pay in full!

Boost your savings when that “Free Money” comes your way

You just got your tax return.  You just got a stimulus check.  Your grandma just sent you a birthday card.  Your company gave you an unexpected bonus.

Your heart, your peers, and your social network cheer:  Treat yourself!

It is easy to think of unexpected cash as “free money.” Yet if your goal is to build up an emergency savings fund, “free money” is a great way to get a big boost.  To satisfy that itch to have a treat, consider making a deal with yourself:  I will set aside 20% (or $20, or whatever you feel you can stick to) into my savings account, and the rest I can use for a treat.

If you plan for your treats and stick to your plan, you gain a double reward.

hustle and Ask for deals

While it may not be a benefit to bundle in services you will not use, it is a wise idea to call your service providers to ask about unadvertised promotions.  Our household was able to keep our high-speed internet bill at $30/mo for nearly 5 years by calling once a year to ask about current promotions, specials, and loyalty rewards.  This annual phone call saved a total of $240 per year.

Tighten Your budget’s Belt

Unsubscribe: Do you know how much you really spend on your subscriptions? Look at your credit or debit card statements for a few months and see what you find.  Often, we sign up for a free month trial and forget to cancel, we don’t notice the $50 because it’s billed annually, or we don’t actually use what the subscription offers.  

Take what is free: Did you know that most libraries have free audio, video, and eBook apps?  Did you know that Harvard offers a whole range of classes for free?!  As you make good choices about reducing your subscriptions, consider taking advantage of the huge range of free courses, events, activities, and entertainment.

Dine-in: Eating out is to your budget what driving a semi-truck is to fuel efficiency: a drain.  Your budget will stretch further on fewer dollars when you eat at home.  Consider leveraging the percent principle noted above – Make a goal for eating at home so that eating out becomes a treat. Don’t know how to cook?  Learning can be easy! Or fancy!  Hate cooking and think you don’t have time?  Cooking can be simple!

Every little bit counts: One of the key-ways dollars sneak away from our wallet is thinking, “It’s only $10 a month” or “Three-dollars won’t go very far” – Perhaps it’s just the cost of your morning coffee. If the only thing you do is make your coffee at home, you stand to save approximately $800 a year or more.  And look closely:  that’s only one cup of coffee a day!

Make it fun: There are dozens of ways to save money and even have fun while you’re at it! Here are a few to get started:  Staycation!  Be a Winner! Grocery Wins!  Become a Hunter! Up-Cycle!  “Use it up, wear it out, make it do or do without…” – Calvin Coolidge

CELEBRATE THE LITTLE VICTORIES

I hope this has given you some practical steps and encouragement to begin an emergency savings account for when life, inevitably, happens.  In closing, I want to offer the most powerful tool you have: Hope.

“Success is failure turned inside out—the silver tint of the clouds of doubt.” - John Greenleaf Whittier

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As one of currently sixty-four B Corp investment advisory firms in the United States, we get asked why Human Investing decided to pursue the B Corp certification. In the spirit of B Corp’s “Together We Are A Force for Good,” I thought I would share a few insights along with highlights from our most-recent recertification.

Why B Corp?

Like training for any number of professions, mastering a skill, or even raising children, becoming a B Corp involves many considerations. These considerations range from how a company is structured to how it operates, the impact its products and services have within the marketplace, and the company’s desire to support new initiatives towards growth. Additionally, assessing the ability to measure and track progress is key, as well as the ability to support the financial commitment. A not-so-secret ingredient and common denominator among B Corps is a strong (even passionate) desire to provide a better workplace for all. Beyond the structural considerations, the reason(s) a company pursues this certification may stem from a grass-roots motivation, a desire to take part in a rigorous assessment of their business practices, or more formal ESG (environmental, social, and governance) goals. Whatever the reason may be, it is available to for-profit companies of all sizes and industries with at least one year of operations. In many states, while the B Corp is not within the tax code, it is acknowledged as a benefit corporation. The purpose of this is to focus on and highlight stakeholder benefits along with shareholder benefits. Stakeholders are clients/customers, employees, vendors, as well as the community and the environment we live and work in. Once certified, a company’s legal documents (i.e. operating agreement), are required to be revised to include this language.

We have often communicated our B Corp certification as: what LEED certification is to a building or Organic is to milk, B Corp is to Human Investing. Becoming a B Corp is about stepping into the rigors of a standard that expects more. Attaining the certification has allowed us to verify how we operate and highlight what sets us apart. When initially hearing about the B corporation, we felt that being a B Corp already existed in the DNA of Human Investing. Walking through the initial certification gave us the first look into whether that was true and where we needed to focus our improvements.

Entering the initial and ongoing B Corp re-certifications have and continue to be a mirror by which we reflect on who we say we are against actual company data. In today’s world, it is easy to espouse ‘to be’ something. It is quite a different story to invite the effort and rigors into that narrative which, in turn, give validation to the words. As we learned more about what the B Corp organization was trying to accomplish, with its Declaration of Interdependence stating: “That we must be the change we seek in the world. That all business ought to be conducted as if people and place mattered. That, through their products, practices, and profits, business should aspire to do no harm and benefit all. To do so requires that we act with the understanding that we are each dependent upon another and thus responsible for each other and future generations,” we saw how it might fit with our structure as a for-profit company, our desire to be a company with high ideals, and our mission to serve the financial pursuits of all people.

The Certification Process 

Our initial certification process in 2014 included questions from 5 different areas: governance, workers, community, environment, and customers. It was like lifting the lid on a shiny car to find out what was really going on under the hood. Accompanying answers to the questions were our company financials along with various forms of data and information to corroborate our responses. Once our B-Corp submission was reviewed, accepted, and exceeded the 80-point minimum we were certified and ready to share the story.

We have recently completed our second re-certification and can confirm the process is becoming more stringent. Data has entered the certification (as with the rest of the business world) in a whole new way.  While the depth and breadth of the questions brought new challenges this time around, it also gave us the opportunity to give feedback to help shape future questions.

Keep Reaching Higher

Our story as a B Corporation continues to grow and evolve. We continue to communicate with clients and vendors not only what the certification is about but why it matters. More and more prospective clients are recognizing the logo on our website and expressing their desire to work with a registered investment advisory firm who is also a B Corp. We have encouraged some institutional clients to consider the certification as well. The challenges of our day are greater, but there is no time like the present to keep reaching higher, for the good of all!

If your firm is considering the B Corp certification and you have questions, please reach out to me at jill@humaninvesting.com, or check out the various resources from B Corp below. And remember that at the heart of it all, becoming a B Corp is a verb.

Additional Resources:

Assessment Info

Certification Requirements

Saving your hard-earned dollars is a better game plan than frivolously spending money. However, keeping your savings in cash (not investing the dollars) is also risky. This risk is called inflation. To substantiate inflation, we found the increase in price of Stumptown Coffee Roasters lattes since 2014.  

**This article is not about Stumptown increasing the costs of their lattes. Suppliers, just like buyers, pay more for the goods they buy when inflation is rising. Stumptown consistently ranks among the best coffee shops in Portland!**

Flashback! It’s 2014…

You have $5.00 to go spend at Stumptown Roasters. That will buy you a delicious medium latte for $3.75 and a shortbread cookie for $1.25. Treat yourself!

Let’s say, instead of spending that $5.00 in 2014, you put it under your mattress for safe keeping. You find the $5.00 a few years later and still frequent Stumptown. We are going to run through a few scenarios of the purchasing power of that same $5.00 bill.

Two years have passed, and it is now 2016.

Your beloved medium latte now costs $4.00, and the shortbread cookie costs $1.35. You find $.35 in your pocket (does finding coins ever happen anymore?!), so you make the purchase possible.

Four years have passed, and it is now 2018.

That same tasty medium latte now costs $4.50, and the shortbread cookie costs $1.50. You might be going home hungry.

Fast forward six years to 2020…

Your medium latte now costs $4.75, and the shortbread cookie costs $1.60. Assuming you would leave the barista a tip, your $5.00 bill cannot even buy you a coffee. You might be going home thirsty and hungry.

Magnifying inflation’s effects on bigger life decisions

In this example, the cost of a coffee and a cookie only changed by $1.33 over six years. While that may not seem significant (the increase is less than $2!), the cost of goods did increase by 26%. If you apply that percent increase to a larger purchase like a home, a car, or education savings, you may not be able to afford what you intended.

One way to maintain purchasing power is to invest the $5.00 into the stock market. If you bought the S&P 500 in 2014, then that same $5.00 would be worth around $9.40 today in 2020, which is enough to pay for a coffee and cookie from Stumptown. For simplicity purposes, we only looked at the rising cost of coffee and S&P 500 return since 2014. To further substantiate the decrease of purchasing power over time, we included a chart that compares the S&P 500 total return to the purchasing power of a dollar since 1990. 

If you have questions or need help preparing an investment strategy for your savings, please contact our team at Human Investing. We drink good coffee.  

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