David Wattenbarger is the President at Drw Financial in Chattanooga, TN and has over 16 years of experience in the finance industry. He started DRW Financial as a fee-only financial advising and planning firm after working for twelve years “behind the scenes” in financial services, where he learned a great deal about how best to serve the needs of his clients.
David has found it valuable to continue learning, and earned his CFP® designation, as well as the Chartered Advisor in Philanthropy® designation, which aligns well with his desire to help clients align their financial lives with their own unique values. David's prior professional experience includes serving as a general principal, options principal, and municipal bond principal for an independent broker dealer, as well as extensive work with other financial professionals on a consultative basis.
David's personal values revolve around carving out quality time with his family and making the work he does worthwhile and valuable to his clients.
BA, College Scholars, University of Tennessee, Knoxville
Assets Under Management:
INFORMATION PRESENTED IS FOR EDUCATIONAL PURPOSES ONLY AND DOES NOT INTEND TO MAKE AN OFFER OR SOLICITATION FOR THE SALE OR PURCHASE OF ANY SPECIFIC SECURITIES PRODUCT, SERVICE, OR INVESTMENT STRATEGY. INVESTMENTS INVOLVE RISK AND UNLESS OTHERWISE STATED, ARE NOT GUARANTEED. BE SURE TO FIRST CONSULT WITH A QUALIFIED FINANCIAL ADVISER, TAX PROFESSIONAL, OR ATTORNEY BEFORE IMPLEMENTING ANY STRATEGY OR RECOMMENDATION DISCUSSED HEREIN
There is a world of information out there, and much of it is helpful in making prudent decisions. At a minimum, if your plan is to make your own investment choices, you should become very familiar with these concepts:
- Diversification. In general terms, this describes how concentrated or "spread out" your exposures are to specific companies, sectors of the economy, or particular risks (like interest rate sensitivity, for example)
- Asset allocation. This relates in some ways to diversification, and is about how the different types of assets available in the investment markets (stocks, bonds, funds holding real estate or commodities, etc) interact with each other. Much research points to the value for investors using an asset allocation model to tailor their investment approach.
- Risk tolerance. Each investor has a particular tolerance for financial risk, informed by a combination of financial capacity, time horizon (see below), and psychology. Defining your own tolerance for risk, and allowing that understanding to influence your investment choices can help you choose an investment strategy you are more likely to stick with over time.
- Time horizon. This is a core component of goal planning and risk tolerance, and essentially addresses how long you have between now and when you hope to meet your investing goal. For example, if you are 30 years old now and plan to retire at 60, the time horizon for your retirement goal would be 30 years. The time horizon may make it clear that certain investments do or do not make sense for a particular goal.
- Active and passive investing. Active investors tend to make ongoing decisions about what to buy and sell based on evolving valuation beliefs, while passive investors tend to set up a portfolio based on an asset allocation model (or similar approach) and let it ride, perhaps with periodic "rebalancing". Both types of investors can use "index funds", although sometimes "passive" and "indexed" are conflated terms.
These are great questions, and it is not uncommon at all for people just getting started with an employer sponsored retirement plan like your 401(k) to feel some confusion at first.
While the details of each plan can differ, it sounds like your employer is incentivizing you to save in the plan by offering a matching contribution subject to a cap. Let's use some example numbers to help clear up what this means in reality. Say your salary is $50,000, and you feel like you have room in your budget to contribute 10% (or $5000) to the 401(k) plan in the first year. Your employer has said they will match 25% of your contributions (yay!), so that works out to another $1250 (this is $5000 / 4). Then, the next year you want to step up your savings a good bit and decide to contribute $10,000 via your own contributions; 25% of that number would be $2500 from your employer, but this is where the 4% cap comes in -- 4% of your $50,000 is $2000, so your employer's match would "cap out" for that year at $2000.
The choice between investment options is a more complicated conversation, and the "best" choice for you will likely be influenced by your age, your likely career progression, your personal appetite for risk, your potential needs for liquidity, and a number of other variables. At the most generic level, you may wish to sort the available investment options by embedded cost (some mutual funds and Exchange Traded Funds cost more than others) and attempt to create a blend of stock and bond investments that suit your risk tolerance. Again, in very generic terms, "growth" funds tend to hold mostly stocks and are designed to target a larger increase in value over time, albeit with more risk and volatility along the way. "Income" funds or strategies tend to select more bonds or dividend paying stocks; these are generally considered less risky, and with less perceived upside potential.
In any case, you may find it very valuable to speak with a trained financial planner who can help you assess the actual investment options available in your plan and work out a strategy to optimize your use of that plan within the larger framework of your financial life.
There are things that "robo advisers" are good at: collecting inputs, running mathematical projections, perhaps even budget management via "account aggregation". However, robos are limited to their programming and cannot engage in any manner of "lateral thinking". Investors often have life circumstances that do not map cleanly onto the robo's options and could potentially benefit from having an experienced human planner or adviser offer some more nuanced advice. Consideration for "complicating factors" like marriage, divorce, a special needs child, abnormal tax concerns, self-employment, a retirement target date significantly earlier than "normal" -- these are all examples that may not be fully addressed by a robo.
Your need for a financial professional, and of what sort, depends largely on what services you are seeking. There is also an element of "fit", meaning that people in your situation tend to self-select into advisory relationships that suit your personality and particular needs.
When evaluating your options, you may wish to consider some of the following:
- Compensation style for the adviser. As you mentioned in the original question, some financial professionals are paid transactionally, while others may be paid a percentage of assets they manage, or in some other transparent manner (hourly, subscription, retainer, project based, etc). The manner in which the adviser gets paid may influence both the method and content of their advice
- Scope and depth of your engagement. Investment management may be limited to a specific goal like "retirement income", or may expand to encompass all investable assets in your household; similarly, financial planning can focus in on advice related to one narrow area of concern, or can be "comprehensive" and touch on taxes, estate planning, charitable giving, review of insurance coverages, etc. If your particular interest in advice incorporates a sufficiently wide or deep set of concerns, it may be valuable to pursue a more tailored and personal level of engagement.
- Standards of practice. There has been an uptick in conversation about the distinction between a "fiduciary" standard of care in financial advice, and the more broadly followed "suitability" standards. In very general terms, advisers acting in a fiduciary capacity are obligated to deliver advice they believe to be in the client's best interest, while under the suitability standard, the advice must be one option among suitable options, but not necessarily the "best".
- Level of experience and education. There are a number of designations, certifications, and titles available in the financial services industry; it may be worth understanding the different requirements and implications of these when evaluating your options for advice.
The following links may be useful in your search for more information:
- LetsMakeAPlan.org is the landing page for people who wish to learn more about financial planning and the Certified Financial Planner™ designation
- NAPFA.org is a resource devoted to connecting investors with fee-only financial planners
This is a great question and shows a healthy amount of forethought about your financial situation.
Financial planning best practice suggests that every household needs an emergency or reserve fund of some amount; the appropriate amount for your household could depend on a number of factors, including the size of your family, your monthly fixed budgetary costs, your various insurance deductibles, etc. A "rule of thumb" number for this kind of reserve account is an amount equal to three to six months' of your typical expenses. If you already have a sufficient emergency fund in place, that cash could serve as a buffer against a short term period of unemployment. If you do not already have a reserve fund set aside, then it may be reasonable to push this goal up in your priorities, even if it comes at the expense or delay of another goal such as your retirement savings.
Some other considerations that may influence your decision to save and in what amount:
- Do you have a spouse or partner who is employed with an income that can support your household expenses should you be unemployed for some amount of time?
- How is the job market in your area of experience? Have you recently reviewed any job boards for positions equivalent to your current role?
- In some cases, roles that allow for remote work align well with contract opportunities for independent contractors -- have you considered whether you may be interested in that type of work should you lose your current job.
- Do you have other sources of relatively liquid assets? For example, taxable brokerage investment accounts that could serve as a back-up source of funds should the reserve account run out; or contributions to ROTH retirement accounts, which may in some cases be accessed without penalty.
To sum up, while there is an opportunity to cost to holding a portion of your assets in cash at the bank, as well as a potential impact to your taxes due to foregoing the larger deferral into the 401k, you may find considerable value in the form of peace of mind from building up an appropriate emergency or reserve fund.