Haven Financial Advisors
Louis (Lou) Kokernak has been serving the investment community for nearly 30 years, after obtaining an MBA from The University of Texas. He founded Haven Financial Advisors as a fee only advisor in 2002. His goal was to deliver unbiased advice to clients. He has been quoted in the Wall Street Journal, Barrons, Bloomberg News among many other media outlets. Lou has taught courses to CFP candidates at The University of Texas, St. Edwards Univerisity, and the University of Texas at San Antonio.
Haven Financial Advisors is committed to their clients' future. They have been a fee only financial advisor since 2002. The first step in the relationship is getting to know clients and what their goals are. It's a two way communications process that requires the engagement of both parties. Lou and his team develop a financial plan that includes a diversified asset allocation tailored to every clients personal situation. Experience tells them that the key value proposition of the plan is the comfort level it delivers to the client - that clients are taking concrete steps to achieve realistic financial goals.
Lou has lived in Austin since 1990. He is a Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP) and is a member of the National Association of Personal Financail Advisors (NAPFA). His charitable interests include public health and secondary education.
MBA, The University of Texas
BSCS, Rensselaer Polytechnic Institute
Assets Under Management:
Mission Statement of Haven Financial Advisors
Haven Financial Advisors explains the evolution of the HSA
Haven Financial Advisors Discusses the Benefits of Foreign Stocks
How to invest your Health Savings Account (HSA)
It's never good to say never but ... whole life policies are unsuitable save for a fairly narrow range of circumstances. The floors on whole life policy value typically do not help real world investors. The guaranteed accrual is not high enough once surrender charges are factored in. By the time those surrender charges lapse, a dedicated investment portfolio would have delivered better results.,
Recently one of my clients shared a quarterly statement of a cash value policy along with current premiums for a coexisting term life policy. The mortality and investment charges on the former were more than 3x the cost of the term policy. Of course, your experience could vary but superiority of term insurance has been a recurring theme in the evaluations of cash value policies that I've undertaken over the years.
As one of your questions' other responders said, buy insurance for insurance needs and investments for your investment needs. Bundled products are confusing and often hide a bloated cost structure intended to provide outsized compensation to those who push them on customers. With a diversified passive investment strategy, you can build a highly efficient portfolio with a very low effective tax rate. Use some natural tax shelters like Roth IRAs and 401ks to provide cover for some of your fixed income holdings. And buy term insurance to provide for your children and spouse in the event of your premature death. 20 year term policies usually fit the bill.
You live in a venue with a high state income tax. If your taxable income is $85,000, you are looking at a 34% combined marginal rate. That argues for the utility of the immediate tax deduction afforded by traditional 401k contributions. Keep in mind, that your 401k plan design likely allows for after tax ROTH 401k contributions. This allows you to make Roth contributions that grow tax-free and which are NOT means tested. You can alternate from year to year if you like. And if you separate from service later, you can roll the Roth 401k into your old Roth IRA.
California's Savings Plus program offers you a self-directed brokerage account to manage your 401k, whether it be traditional or Roth. There is a wide array of low cost index funds available in this program. Schwab itself owns several index mutual funds and ETFs that have among the lowest costs in the industry. Consider their Total Stock Market Index (SWTSX) with 0.03% of management fee.
Bottom line: Californians should be fairly aggressive with taking tax deductions while working there. The tax rates they pay are high. You can still do Roth contributions within the framework of a 401k. Do both. And use index funds available in the self-directed brokerage option available to state employees.
Your situation resembles that of one of my clients. The $175,000 cash balance is higher than what you require as household working capital. Typically 6 to 12 months expenses should suffice. You can use some of that cash. Paying off mortgage is a good first step.
The mortgage rate on your current investment property is much higher than the rate you are earning on the money market savings account. I'll assume that your mortgage rate is 4.0% and the money market savings pays you 1.5%. Remember ... every dollar you invest in the mortgage SAVES you 4.0%. That's a good risk free return on investment.
After paying off the mortgage, you'll still have $95.000 in the bank. At your current rate of saving, your cash reserves should be built up to the point where you can put a down payment on another property within 6 to 9 months.
You are using the right building blocks, with 85% of your investment deployed in low cost index funds. That said, the 90/10 weighting is not intended for everyone. Individuals are at different stages of the life cycle and have differing underlying risk tolerances. Buffet was merely making a larger point about the effectiveness of a fairly simple investment strategy. No one would argue that a 90% stock weighting is good for everyone.
As you approach retirement, you are most vulnerable to declines in financial markets. Your human capital (working life) is winding down and, thus, your ability to offset losses with additional or better labor is diminished. Yet your life expectancy is fairly long so you need to preserve assets. These factors argue for some conservatism. Not sure what other sources of wealth you have. Large pension income certainly makes it easier to tolerate portfolio risk, for example. However, most of my clients in your position have somewhat more conservative portfolios at your age.
You can still use the same building blocks. Exchanging stock index funds for bond index funds in tax sheltered accounts is one way to reduce risk without generating an unwanted taxable event. If you are looking some low cost ideas, consider these 4 ETFs as basic tools.
VTI (US total Stock Market Index (.04% annual managment fee)
VEU (Ex USA Stock Market Index (0.11% annual management fee)
AGG (USA Aggregate Bond Index)
TIP (USA Inflation-Portected Securities)
The differences between an indexed mutual fund and an exchange-traded fund (ETF) are subtle, but can be important. Most indexed mutual funds are low cost. There are exceptions to the rule. Mutual funds that track the S&P 500 have management fees that range from 0.03% to over 0.50%. That adds up over several years. Indexed ETFs all almost uniformly competitive with the cheapest index mutual funds.
The security structure of mutual funds and ETFs is different. Mutual funds are marked to market once a day, after close of market. They are priced at the net asset value (NAV) of the underlying holdings. ETFs trade continuously throughout the day like stocks. Their bid ask spread reflects the overall trading volume in the ETF plus a risk premium that dealers require to make a market in a security that may have illiquid underlying assets.
Mutual fund managers must retain cash balances to satisfy share redemptions. Thus, some of the investor money sits idly. On the other hand, the number of ETF shares is fixed in the short term. Almost all of the ETF value is invested in the index.
ETF shares are created and redeemed by authorized participants (APs) in exchange for the market basket of underlying securities. This feature allows the ETF issuer to manage the cost basis of the inventory they deliver during the redemption of shares. Bottom line, equity ETFs are more tax efficient than equity mutual funds. SPY, for example, has paid virtually no capital gains distributions in its 20+ year lifespan.
Some ETFs do pose a disadvantage relative to mutual funds. Prices of the less liquid ETFs can deviate materially from their NAV. Moreover, bid/ask spreads can be substantial with these less liquid ETFs. The mark to market feature of the traditional open-ended mutual fund does insulate investors from trading anomalies like this. Thus, investors should be careful in placing orders for some of the smaller ETFs in the marketplace.