On an average working day, we field a dozen phone calls from clients with questions about their financial lives. Certain questions get asked more frequently than others. Here are the five most-asked questions:
1) When should I begin taking Social Security? Like the answer to many questions, it depends. Generally, the longer you can wait before taking Social Security the better off you’ll be. Two reasons for taking it early would be if you need the income to live on or if your life expectancy is relatively short. But if you don’t require your Social Security benefits to live on, our general answer is to wait until age 70 to take benefits. Age 62 is the earliest you can claim, but your benefits are reduced by 25% from your full retirement amount. For every year you wait beyond your full retirement age (66 for most), you will get an annual bump of 8%. Delay until 70 if you can. You’re shortchanging yourself by not doing so.
2) Can I retire? The underlying question here is, do I have enough assets to avoid outliving my money and to recreate an income stream I’m accustomed to? Again, the answer depends. Our initial response is to update the client’s financial plan. If they don’t have one, the first step becomes to do one. In lieu of a financial plan, we can do some simplified projections to give you an idea of how things may shake out. Oftentimes, when we tell a client they have enough to retire they choose to continue working, content with the knowledge they can walk away if they so choose. There’s nothing like having that financial freedom.
3) How do you invest your own money? Prospective clients typically ask us this question. It’s a great one and we love getting it. The answer is that we use the same investments in your account that we do in our own. You can’t trust a skinny cook and you shouldn’t trust an advisor/broker who doesn’t eat their own cooking.
4) Why not just invest in S&P 500 stocks? Ten years ago, it was “why not just invest in foreign stocks?” Investors always want to buy what’s leading the pack and what’s working now. The problem is they end up chasing performance. This chart is a great reminder that asset classes rotate leadership and why it’s important to diversify beyond U.S. large cap stocks. (See also why we build diversified portfolios.)
5) What are “margin privileges?” When we open an investment account for you (individual or joint), one of the forms you sign gives you the right to borrow against your account. Most clients say “Oh, I’ll never use that,” but we eventually find out how long “never” is. So when might you borrow against your account? Say you need a short term (bridge) loan and don’t want to go through the paperwork hassle involved with getting a bank loan. Notify us you want to borrow some money and we’ll do our best to negotiate a lower rate through Schwab.
Bonus question: Why do you buy stocks that go down? Nine times out of ten, clients are just ribbing us with this question. When we build a portfolio of 30-40 stocks, inevitably a couple don’t work out like we envisioned. We appreciate our clients who point these out, but we can assure you that we’re already aware of our problem children. To deal with these, we have what we call the Down 20 Rule. If a stock falls 20% from where we purchased it, we give it a hard look and most of the time choose to sell it. This preserves 80% of your capital and prevents us from falling in love with a stock. Like all good lessons, this one was learned the hard way.
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