XYPN Live 2019: A Week of Financial Learning

XYPN Live St Louis

What a whirlwind week!  Last week we had the chance to go to the XY Planning Network Conference (XYPN Live 2019) for fee-only financial advisors and it was a blassssstttt.  Not only was the conference great, but Jim and I were able to take a 2 hour brainstorming walk session around St. Louis. #MyFav

XYPN Live St Louis
Windblown & Energized!

We presented Stock Options 101 to a packed room of financial advisors looking to one-up their stock compensation understanding and how to think about it with clients.  [Shout out to my co-presenter and friend, Shane Mason at Brooklyn FI!]

With our powers combined, we tackled:

  • how each type of stock compensation works, 
  • what that means in regards to taxes and AMT, and 
  • “Pro Tips” on how advisors can best support their clients/push their clients to better use this to grow their wealth

We may even start a stock comp education series to help all of us.  <<if you like this idea, please send us feedback and your stock comp questions>>

We also learned how financial advice is changing.  Technology won’t replace the advisor, but it will augment and change our focus.  We love technology and we are always looking at how to incorporate more into our business (so if you have ideas for us, please let us know!).  In the future, the value of advice will be in empathetic learning and financial engagement.   

Aka, creating space for you to pause the treadmill of life, consider your true desires, and then automate ways to get closer to that future.  

The advisor of the future is coming fast and it will be such a welcome change from what was ‘advice’ by only providing investment services or products.

To this end, I learned what this change may mean for SeedSafe Financial by engaging in a two-day pre-con with George Kinder.  George Kinder is the founder of financial life planning.  Taking financial plans from how do your assets and resources get you to your goals to are these even the right goals for you?  I already use his ‘three big questions’ often.  They help me understand whether the financial plan we put together would be meaningful for our clients, but this took it to another level.  [more information on The Three Big Questions can be found in this WSJ article – try them on yourself!]  

This pre-con was the emotional hard work it takes to make financial life changes for each of us…starting with myself.  I cannot ask someone to do what I cannot do for myself, so to be a life financial planner means I have to be living my best life plan too 🙂

Other big takeaways:

  • Fee only financial advisors are pretty awesome – I was able to get to know so many planners and learn the story of why they came to the fee-only world.  Most started their own businesses, so it was great to learn how others see and do things
  • XY Planning Network pushes advisors and consumers to be better – knowledge is power, and XYPN LIVE provides it in spades!  Even better, they connect all of us and energize us toward change. The conference did not disappoint in this arena
  • Technology changes…but stays the same.  We all want connection in the digital age, so use technology to that end.   Automate what you can from a quantitative and logical standpoint. Augment your connection through more videos and meaningful communication

This year is a record for my family and firm in the world of changes and new experiences.  I’d like to think those changes will finally settle a bit and allow me the space to talk with you more in the future.  To that end, we will be restarting our newsletters and incorporating ‘mini learning series’ on a bi-monthly basis. We will cover our “pro tips” on:

If you want to learn more about the power of life habits, cleaning your financial house, and creating your own financial plan, sign up for our newsletter HERE.

Building a financial plan is like building a home

Buying a home

As a financial planner, we talk in numbers and make it sound so simple.  If you want X in the future, you have to give up $Y now in spending.  

Are those choices easy to make though?  

Financial plans are based on assumptions, and the outcome of the plan can seem distant and uneasy to grasp.  So I compare it to building a home.

Where will you build? How many bedrooms? Two floors or one? With a pool?  Before you can hire the architect to put together a design, there are a ton of questions to ask yourself.

In the financial plan process we start with defining and thinking about all the angles of your financial life and what you want.

By identifying your current, mid-term, and long-term goals, you set the blueprint for what the house looks like.  You proverbially map out room sizes, doorways, and other details.

With this information, the builders can start their work. Determining how much cement is required for the foundation, how many beams are needed to create the walls based on the floor plan, etc.

Your goals will inform how much in savings and investments you need to make now to complete your goals later.

Once the builder knows how many pieces are required to complete the home, you receive a basic cost outline for the structure.  Can you afford the basics?  Maybe once you’ve seen the outline you decide you don’t really need a second guest room.  How often will you have guests over anyways?

Next comes the interior designer.  You chat about cabinet finishes, wood flooring, and whether brushed bronze door knobs or the standard silver will do.

Knowing the costs now help you prioritize what you value most in the home.  

What do you value about building your own home?  Was it about the location?  Did all the other homes have two bedrooms but your family needed a third bedroom?  

Then, if you get a bonus or raise later, you can decide where to add flexibility.  Maybe you will start with carpet and standard silver door knobs, and then upgrade to wood floors and brushed bronze door knobs.  If it happens, great – but if not, it doesn’t affect your most important value of being in that location.

Every decision you make is a trade-off between current and future expenses.  Future expenses are the savings and investments you make now to be ready for these expenses later.  

You are always making these decisions.  Even not making a decision is a decision in the end.

Financial plans start with knowing your values, identifying your goals, and establishing priorities.  What kind of life do you want to build?  

Schedule a consultation to see how we can help.

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.

RSUs in your investment portfolio

If you receive a large grant of RSUs or company stock, you will have many risks. Risk of termination before vesting, risk of market volatility in stock price, and asset concentration are a few. You will need to decide whether you will keep the stock once vested, or if you prefer to sell the stock at vesting date.
Concentrated Positions
A concentrated position occurs when you have a large amount of your finances wrapped up in one company. This can cause problems by increasing risk in your portfolio, causing tax issues, and liquidity needs. These risks compound if you have a long time horizon for your investment or your tolerance for risk in your financial plan is different.
Holding onto your company stock can leave you very dependent on one company’s success.
Chances are your salary, your 401(k) match, and your stock compensation are all tied to one company. This one company can ‘make or break’ your future financial freedom based on how well they do.
 
Example: If a competing product comes out, this may drop your stock value and require lay-offs longer term. Many smaller tech companies realize this pain when Amazon or Google announce a competing tool. The stock can plummet by 50% within a week.
Example: If a company ends up like Enron or WorldCom, then the drop may even be worse – wiping out your earnings and stock value completely. It may be hard to think this could be your company when we tend to be overconfident when we have an insider perspective on our employer’s prospects.
 
In these price drop scenarios, you may have paid significant taxes on the vested stock already as well.
On the flip side, if you hold on to the shares and the company goes gangbusters, you may also have significant capital gains accruing. Selling the entire position may not be tax-efficient and cause you a different headache.
Diversification
Holding a large position in one company stock exposes you to higher risk of large movements in the stock price from day to day. Diversification is used to help investors choose a portfolio that offers the best return for a given level of risk. Why take on more risk than is necessary to achieve a given level of return?
A diversified portfolio is based on academic research into the disciplines of economics and finance. Research holds that investing in many different asset classes (i.e. emerging markets, U.S. large cap funds, etc) and in many companies within an asset class will reduce your investment risk. This seeks to avoid damaging investment performance by the poor performance of a single company stock or asset class.
 
At SeedSafe Financial we practice diversification for long term success.  Find out more about our investment management services and consider giving us a call.
 
Find out how diversified your portfolio is through our free online tool.
 

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The above discussion is for informational purposes only. Recommendations are of a general nature, not based on knowledge of any individual’s specific needs or circumstances, and there is no intent to provide individual investment advisory, supervisory or management services.
If you live in a state with it’s own form of state AMT, this further complicates the matter. AMT calculations can be difficult and you may need professional help, such as that of an accountant, tax attorney, or someone experienced in complex tax returns.