By Gabriella Sheffield, MSBA, CFP®, AIF®
When I was a child, I remember my Abuela hiding cash in sock drawers, secret pockets and cookie jars around her house. She would tell me to remember where everything was hidden in case something happened to her. This makes sense to me now; she escaped Franco’s fascist regime in Spain during the 1940’s only to later escape Castro’s dictatorship in Cuba in the 1960’s. To say that she didn’t trust the government was an understatement. Growing up with this skeptical attitude didn’t help educate me on how to save or invest in the traditional American banking system. Don’t let your grandma’s old world way of thinking determine your investment style.
If you are part of the ever growing U.S. Hispanic population, you know how hard it can be to break away from culture and tradition. Your parents and grandparents taught you to save money for your family. What they weren’t able to teach you is how to invest money, methods to save for retirement, and whom to trust with your life savings. Living in the information age lets you access all of the investment advice you need. The internet, social media and TV are sources of unlimited information, yet it can be an information overload. Hiding money in the cookie jar is no longer the best option and here are some tips to help get you started:
1 - How to Invest
Tired of investment connoisseurs acting like they know something about the market that you don’t? So am I. I have been behind the scenes and am a firm believer that markets work efficiently, meaning any piece of public information is already woven into the current market price. Keeping a diversified portfolio in low cost index funds is a good way to spread out risk and avoid losing your hard earned savings to invisible fees. I can hear you saying, that sounds great but how do I get started. There are Brokers out there who will recommend fancy investments, high cost mutual funds and complicated insurance products. There is no reason to pay high fees. The key is to keep it simple, if you don’t understand the investment, chances are the product is very risky or too good to be true.
2 - Saving for Retirement
In your head you decide, I’ll start saving for retirement after I pay down my credit card bills, after I get back from that big family vacation, after I can afford my dream car. There is always an excuse for why now is not the right time. However, time is of the essence. Start now with good habits and it will be easier to build your savings. I recommend placing 15% of your paycheck in a 401k plan – more if you can – but certainly meet your employer’s match. Your money will grow tax deferred over time, providing you with a financial foundation for your retirement. I agree that it is important to enjoy life in the present, but you will end up working way past your retirement age if you don’t make this significant choice now.
3 - Who to Trust
Choosing a financial advisor can be overwhelming. I usually compare it to picking out a car mechanic, you can take your car to two different body shops and one mechanic will suggest fixing the timing belt so that they can earn your trust as well as a lifetime customer. The other mechanic will suggest replacing the entire engine so that they can make a buck off of you and never worry about you again. The U.S. Department of Labor (DOL) recently issued a final rule expanding the definition of ‘fiduciaries’ in the retirement sector just for this purpose. In order to avoid a broker who is giving you advice solely to make a commission, it is very important to ask them if they are a fiduciary. A fiduciary is required to act in your best interest, mitigate and disclose conflicts of interest and operate with full transparency. It is also crucial to make sure that your Financial Advisor is Fee-Only. This means that they are paid a flat fee based on the assets they are managing for you. They do not receive incentives from outside parties to sell you products for a commission. Finding a financial advisor with experience, the proper certifications and education can be difficult, make sure you work with someone that has the CERTIFIED FINANCIAL PLANNER™ (CFP®) designation. A CFP® has experience, education and ethical requirements that a typical broker does not have to follow. Working with a Fiduciary and CFP® will separate out the qualified from the masses.
Grandma didn’t come to this country because she wanted to keep sewing her gold necklaces into the seams of her clothing. She came here to give you the opportunity to live the American Dream. Investing in the public marketplace, saving money for retirement and finding the right financial specialists to work with are key. The tools are out there, now it’s about asking the right questions and starting early. It is never too soon to start thinking about tomorrow.
Gabriella Sheffield lives in San Diego, CA where she founded an investment and financial planning firm Radial Wealth Management. She may be reached at firstname.lastname@example.org and her website is www.RadialWealthManagement.com.