6 Simple Ways to Secure Your Financial Future

Too often financial advice assumes that we have all of our ducks in a row. You know, that we live simple lives where we save early and throughout our careers, treat marriage and children like simple financial decisions, and follow a budget. Then reality strikes. There was a Black Swan lurking and, like every Black Swan event, it was not foreseen. In fact, it was unknowable. Even when we have health insurance, life insurance, disability insurance, and great homeowner’s coverage, life throws a curveball that we just can’t hit.

Despite all of these things, I’d like to think that I can construct a basic financial plan that helps me get on the path to security. A plan that helps me fight off the curveballs of life. No, I can’t predict an event that I don’t know anything about, but  I should be able to put myself in a financial position to absorb more of life’s challenges.

Financial Planning is destined to be an imperfect science. Despite using Modern Portfolio Theory to mathematically create a risk-adjusted portfolio, the markets will still dictate returns. Hopefully, my portfolio can absorb it. A financial plan relies on sound markets, a strong currency, and a sane electorate as its base.

Even if the next Great Depression is on the way, there are basic steps to take that will help assure a brighter financial future.

1. Be optimistic. We have to believe that the world is not ending, the dollar is not going to fail, and we won’t lose everything to inflation. I’m not saying take the blue pill and live in blissful ignorance. I’m arguing to take the red pill knowing and then build a better place with the knowledge it brings. Decide to proactively pursue a bright future.

2. Start tracking your spending habits. Before you can get going on your budget you need to have a basic understanding of what you are spending. I use Personal Capital to track spending and investments. It nicely puts all of your accounts in one place.

3. Put your money to work with a budget. Give your money purpose by putting it to work. Before your paycheck arrives, know where it should go. This is commonly called, wait for it, creating a budget. Here’s the secret. You have to make sure that your have a plan for every dollar or you’ll see your paycheck and bank account like a line of credit that can be spent on whatever you want! If your dollars are assigned to a specific task, you’ll see that the “Shoes” category only has $20 and pass by the $100 pair until you’ve saved for next time. Consider using YNAB.com. You purchase their software and it helps you put together a great budget.

4. Save 10%. Savings is a budgeting category but needs to be emphasized. In a perfect world, we would save 10% per month until we had about six months worth of cash savings ready for a rainy day. After that we’d put 10% into our investment portfolio for retirement. We would also save for future purchases, like that big family reunion on the Disney Cruise line. By putting a little bit toward your family reunion fund each month, you’ll find that you are paying in cash instead of using a credit card. I have an online savings account with CapitalOne360, an online bank. I like that I can have one savings account and break into different categories. After that we would begin to…

5. Insure yourself and your possessions. Stick with term life insurance. Permanent insurance is too expensive for the average person. Term insurance is protection for your family in case of loss of life or ability to work. It’s a critical part of your portfolio. How much life insurance do you need? Use LifeInsure.com as your online life insurance resource.

6. Build a risk adjusted portfolio. By this I mean allocate your money across a broad range of assets and rebalance. The best way to do this is to sign up for Personal Capital or MarketRiders. Both will tell you exactly what your asset allocation should be. Don’t get caught up in penny stocks or newsletters from gurus. Embrace diversification.

Hopefully you see how easy it can be using online financial tools.  These are the basic, simple steps that create powerful results. This is not the path to billionaire status, but that’s not the journey we’re on. We are just looking at ways to easily secure our financial future. As you start down the path with these tools, your knowledge base will expand and you’ll see the possibility of putting your house in order. It’s a great feeling.

 

Jemstep Portfolio Manager Interview

I had a few lingering questions after going through my Jemstep Review site in detail for my Jemstep Portfolio Manager review. Overall, Jemstep is a great product. I’ve also enjoyed the interaction with their support staff and management team. At any rate, I am posting the email conversation with the people over at Jemstep  here in full. I think it gives a good taste of their vision, expertise, and general desire to help investors.

1. “I’d like to understand the genesis of Jemstep.”

The vision for Jemstep is to enable “everyday” investors to make the best investment decisions for themselves and their families—to achieve all their financial goals, regardless of their level of sophistication or the size of their portfolios.Jemstep started with the creation of a patented investment evaluation engine that advises people on specific funds that are right for them within a specific asset class combined with the ability to see all your accounts in one place.  With the launch of Jemstep Portfolio Manager, we now offer a complete portfolio management solution for retirement.

Jemstep’s patented technology assesses your current investment strategy and designs an optimal asset allocation plan for your situation, including your current income, years to retirement, savings rate, and more. Our investment evaluation engine then analyzes over 20,000 mutual funds and ETFs to identify what to sell and what to buy to guide the investor to the best investment options for building their  ideal portfolio. The Jemstep advice engine evaluates cost basis, asset location, fees and fund quality and fit to develop its specific recommendation.

2. “What is the nature of your partnership with Windham Capital Management? Does that mean that you believe there’s a point at which it is best to use an advisor over Jemstep’s software or perhaps it is more of Windham seeing the power of technology to expand to an under-served market?”

Jemstep reached out to Windham Capital Management which is an institutional level portfolio manager and advisory firm with the goal to bring institutional quality portfolio advice to the everyday investors. Working with our investment team Windham worked to design a set of portfolios suited to individual investors to provide reasonable upside but also protection during down markets. Jemstep used asset classes that are familiar to individuals and easily accessible through mutual funds and etfs.Windham’s participation is not a commentary on a natural progression from Jemstep to Windham, but rather driven by a desire to bring top quality investment advice to individuals through the Jemstep service.

3. “Does the software factor in trading costs and broker commissions when making recommendations? In other words, if an ETF that models the S&P 500 is recommended, will it also recommend purchasing it from Vanguard or another Broker?”

The model uses benchmark indexes but will recommend a number of funds that can be purchased from Vanguard or other brokers. We do not just recommend only one fund or ETF per asset class, but rather evaluate all funds that appropriately correlate to the index. We consider transaction costs but we do not have all the variations of fees for all brokers so we use a general factor in this. We do consider cost basis and gains in taxable accounts and attempt to minimize capital gains by selling in tax-advantaged accounts.