The more things change, the more they stay the same. That old saying certainly applies to the “Savage Truths” I write about every week. The basics have not changed in the past few years. The principles of credit and debt, saving and spending, and investing for the long run still apply.
But the changes are important, too. Much in the world of personal finance has now been made easier and more accessible by technology, apps and even pricing wars among financial services providers.
Today, there is exponentially more information about every aspect of personal finance online and at your fingertips. But that doesn’t necessarily make the choices easier. In fact, deciding what advice to trust, and how to organize your decisions into a framework for financial success is more difficult than ever amidst the superabundance of information.
Things are not always as they seem. Consider fiduciary advice. A fiduciary, as I’ve written many times in this column, is a person who agrees in writing to put your interests first and fully disclose all fees, commissions and incentives she or he receives in connection with the advice and products you are given. That’s a pledge that few are willing to put in writing on company letterhead!
A financial salesperson might use virtually any title ranging from adviser to financial “planner” to “annuity expert.” Even a CFP — certified financial planner — might have a background history of financial abuse, as was recently revealed in a Wall Street Journal investigation. So you need to know the questions to ask and the places to search for credentials and history of anyone who offers financial advice.
In recent years, the process of managing your entire personal financial life has changed dramatically. Robo-advisers like Wealthfront and Betterment and Robinhood have given new ways not only to track your finances but also to manage your investments automatically.
Investing has become far more accessible to those with only small amounts of money to get started. For example, the Acorns app allows you to “round up” purchases on your credit cards and gather those extra pennies to start investing in a diversified stock portfolio with as little as $5. Of course, you can always add more — and even make that account an IRA.
Wall Street is reeling from the move to low-cost, or even no-cost, investing and trading. Financial firms are searching for new ways to make money off individual investors. Those who aren’t aware of the alternatives will be paying significant annual management fees.
The world of annuities has become perhaps the biggest and most expensive trap for a generation that is now facing retirement. Baby boomers are faced with rolling over their 401(k) accounts swollen after 10 years of a bull market. Reluctant to risk that money, they’re often tempted by the hollow promises of “no downside” in a fixed index annuity. But huge commissions go to the salesperson who invites you to a free lunch or steak dinner. And you’re paying for them!
Then there’s the issue of how to make sure all that money from your retirement account last your lifetime. Yes, there are required minimum withdrawals from your tax-sheltered accounts. But what if you live longer? You’ll need to understand how to provide for longevity, beyond the averages.
And that brings up the challenge of long-term care insurance, a product much maligned in recent years as insurers belatedly realized they had underpriced their products and started raising premiums. Now there are new opportunities to combine both life and long-term care insurance, guaranteeing a payment to beneficiaries if the care portion is not used. Best of all, it removes exposure to rising premiums.
The time is right. With technology and new business models changing the financial services industry, the new revision will help investors keep their bearings. Especially useful is an entirely new chapter devoted to understanding the importance of fiduciary advice — and how to find it.
(Article written by Terry Savage)