Financial Plan, Inc.
James (Jamie) Twining is the founder of Financial Plan, Inc., and a CERTIFIED FINANCIAL PLANNER™ practitioner who works with an exclusive high net worth client base. Jamie has a niche advising BP Cherry Point refinery employees.
A graduate of the University of Southern California and a devoted husband and father, Jamie enjoys spending time with his family, leading the choir at Sacred Heart Church and outdoor sports including mountain biking, scuba diving, and an annual surfing trip to Mexico.
His favorite pastime on a rainy winter’s night is to sit down with his son Gabriel, open a bottle of fine Pinot Noir and play a game of chess.
To be consistently profitable, my advice is to be an investor, not a day-trader.
Day traders make money by trading securities based upon their forecasts of future price movement. The trouble is that no one can predict future price movements. Day trading is quite akin to gambling, including the "house odds", which for the day trader are the costs of trading. Most day traders lose money over time, just as most gamblers do.
An investor does not make money by trading, but rather by owning profitable companies. A widely diversified portfolio of equity securities held over long time periods is almost certain to increase in value.
If you decide to day trade, I would do it as entertainment. For me, it is not so entertaining to throw money away on day trading schemes or slot machines.
The best indicator of value is the market price. The market price is the consensus price of literally millions of participants. Those who attempt to use other methods to guess if a stock is over or undervalued have a terrible track record of doing so successfully.
That is why a Harvard MBA mutual fund manager gets beaten by an unpaid monkey with a dart board fairly consistently. Typically, about 85% of stock funds are beaten by their indexes annually. Over a ten year period of time, less than 5% beat the indexes. Those are odds I want to avoid.
There are many techniques you can use to your benefit. Stock picking is not one of them.
I would caution you not to make predictions as to the future price of anything. Rental real estate may be priced highly in your local market relative to the past, but that is not what matters. What matters is the unanswerable question; are the prices high relative to where they will be in years to come? No one knows. Don't ever let any market surprise you, it is altogether possible that the prices will continue to rise.
The same applies to mortgage interest rates. No one knows if they will rise or fall from current levels. Don't be surprised if they fall. It is true that the fixed rate mortgage carries less risk for you if the objective is positive cash flow for the long term.
I find it extremely unlikely that lenders will discontinue fixed rate mortgages. My advice is to actively seek attractively priced properties without regard for opinions as to whether real estate prices or mortgage interest rates will rise or fall.
First, determine whether your advisor is a securities salesperson or a fee-only advisor. Here are some clues that can help you: If your advisor has the title "registered representative", or if you see the phrase "securities offerred through..." then your advisor is really a salesman. A salesman is not qualified or paid to give advice. It will be difficult to determine what you are paying, because the brokerage industry is quite experienced at hiding compensation numbers. Regardless of what you are paying to a salesman, the value is questionable, because the true cost of buying and selling investments is near $0, and the "advice" is typically given as a tool to steer you into the investments being sold.
If instead, you see the words "fee only", or NAPFA member, then you have a fee-only advisor. This advisor is a fiduciary, and is qualified and paid to give advice. A fee only advisor is typically transparent with fees, and it should be easy to figure out how much you are paying. There are a few different ways that advisors charge, but far and away the most common is as a percentage of fees under the management of the advisor. Typically, a fee-only advisor charges in the range of 1% for the first million dollars, and lesser percentages for amounts over that. This fee should buy you more than investment management. It should include advice on your entire financial life. The advisor should oraanize your finances through financial statements, projections, and written action plans. The advisor should also coordinate a team of professionals that advise you in the areas of lending, insurance, income taxes, and estate planning.
You should see the fees being deducted from the money market portion of your accounts on a monthly or quarterly basis. To find a fee-only advisor's fee schedule , evaluate the firm's ADV form, which can be found at https://www.adviserinfo.sec.gov.
In short: no, it is not a good idea, and an insurance agent is not able to give objective advice, as they have an obvious conflict of interest here.
Insurance works best for events that are 1) unlikely to occur, and 2) catastrophic if they do occur.
The need for short term care is not unlikely to occur, nor is it catastrophic if it does. I would estimate that one in three retirees will require short term care at some point in their lives, and the cost in today’s dollars if we assume a one year need at $8,000 per month is approximately $100,000. Anyone for whom a $100,000 expense is catastrophic is likely going to run out of money in retirement regardless of whether a short term need for care arises or not. For retirees of limited means, it is quite easy to become “insurance poor” ; paying premiums for all sorts of insurance, and suffering financially as a result even if none of the insured events takes place.
Other examples of inappropriate insurance include vision and dental insurance. Neither of these costs is unlikely, nor catastrophic. Rather than reducing risk, these policies tend to simply funnel expenses through the insurance carrier, while adding on the costs of administration and the insurance company profits. It is better to simply pay the expenses directly.
Examples of appropriate insurance include life insurance for a dependent spouse beneficiary, fire insurance on a home, catastrophic medical insurance, and auto liability insurance. These insure against events that are unlikely to occur, but they can cause catastrophic financial loss if they do. Because the events are unlikely, the insurance issuers need not pay out claims very often. This serves to lower the premiums, and spread the costs over a larger group of people, while paying out large claims to those who suffer the unlikely event.
In regard to the short term care insurance question, I would go a bit further and say that the advisability of even long term care insurance is questionable. A long term care need is not terribly unlikely, nor is it necessarily financially catastrophic. Consider that if someone requires long term care, it is likely a permanent situation. Thus, the home can be sold to pay the costs. Often the equity in the home is sufficient to pay for many years of coverage. In recent years, the claims experience of long term care issuers has been dreadful, causing them to raise premiums and lower benefits. In certain situations it can be appropriate, but in my opinion it is often better to “self insure” if assets are available to sell to raise the funds. Of course if a primary objective is to pass on assets to heirs, this will color the decision in favor of the long term care insurance purchase.
I hope that this is of some help in your decision making process. All the best to you!