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Created: August 28, 2020
Modified: June 6, 2023

On Financial Instruments and Financial Advisors

What You’ll Learn:
There are a lot of different tools to get you to retirement and some products will work better than others. Today we’ll answer your questions relating to 401k accounts, IRAs, money market accounts, insurance, and more. Plus, we’ll address the costs of financial advisors and what you should expect.

The beautiful thing about financial planning is that there are endless ways to get to where you want to go. From investments to retirement accounts to insurance and beyond, there are so many tools at your disposal to saving money for that next chapter in your life.

We work with all of these tools and talk about them all the time with clients. With so many options come questions and listeners have been asking about the financial instruments recently. So let’s take this episode of the Money Wisdom podcast to focus on a variety of planning topics and see what we can learn.

Mailbag Question 1: For decades I’ve had laddered CDs so I’d have one maturing every year. But with interest rates so low, I’m wondering if I have too much in the bank. How much is too much?

Generally speaking, Joel likes to tell clients to keep one year’s worth of expenses in the bank. You never know when an emergency will pop up. And that’s for people that are retired.

Mailbag Question 2: I have seven different IRAs, all at different investment companies. It’s gotten to be a lot to keep up with but I like staying diversified like this, right?

The truth is you might not be diversified at all. It all depends on what investments make up those IRAs. Just because they are kept at different companies doesn’t mean the portfolio is balanced. Often times different funds will consist of many overlapping investments. You’ll want a professional to evaluate your portfolio to find the answer.

Mailbag Question 3: I’ve been on disability for the last 10 years but just found out I won’t be getting it anymore because they say my condition has improved. I’m 56 and still can’t work full-time. I have plenty saved for retirement but wasn’t planning on touching it until my mid-60s. Will I be in trouble if I start spending it down now?

It all depends on how much you have and how much you need to spend each month. It could definitely put you in a bad position in retirement if you’re spending down on it now but that’s something you’d want to look into a lot more. Get a plan to see what your options are. You’d also want to get another opinion on disability insurance. 

Mailbag Question 4: I’m a very conservative investor and I have about 80% of my 401(k) in a money market fund. I’m afraid to take too much risk and make the wrong decisions. How badly am I hurting myself with this approach?

Joel believes in the old adage that you don’t want to take on more risk than you’re comfortable with. Would he keep that large of a percentage in a money market account? Probably not, but it also depends on where you are in life. If you have enough saved for retirement, than a very conservative approach is okay.

Mailbag Question 5: I’ve been approached about buying an insurance policy that would cover all of my cemetery and funeral home costs when I die. I’ll have more than enough without the insurance money but I like the idea of the kids knowing there’s money earmarked for those costs so they don’t have to worry. Is this a good purchase?

The answer is probably no but we would see the numbers. If you have enough money already, set up a new account to put that money into and let your kids know that account is there for those costs. You might even gain a little interest on it.

Mailbag Question 6: I have an after-tax account with investments that pay nice dividends but those create a substantial tax bill every year. Should I change the investments in that account?

You know what we always say but it depends. How big is that tax bill? Dividend income is better than interest income but we’d want to see your portfolio. Joel will share a few different investment options that you could consider but there are too many to list at once.

Mailbag Question 7: I’ve thought about meeting with an advisor to plan for my retirement but I’ve never used a budget. Should I do that for a few months before meeting with one?

The short answer is no. Most advisors won’t make you put a budget together so you don’t need to worry about having one before setting up that first appointment. If you want some financial advice, go ahead and meet with someone (or multiple people). Planning is much more than a budget so don’t get too hung up on that.

Mailbag Question 8: What do you consider a reasonable amount to pay for financial advice?

If you just want a plan with no management beyond creating that plan, then the costs will be lower. And it also depends on where you live. The key is following the plan once you get one and that’s where an advisor will come in and keep you on track.

Joel will go into more detail on each one of these questions on the show so listen to hear all the information. Thanks for listening to this episode. We’ll be back again next week for another show.

[0:20] – Mailbag Question 1

[1:10] – Mailbag Question 2

[2:55] – Mailbag Question 3

[4:49] – Mailbag Question 4

[6:27] – Mailbag Question 5

[8:24] – Mailbag Question 6

[10:00] – Mailbag Question 7

[11:53] – Mailbag Question 8

Thanks for listening to this episode. We’ll be back again next week for another show.

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