August 2020 – Practical Tips for Managing Your Family’s Finances

Full Episode Transcript

Naj:

Hello, and welcome to the Fisher Investments Market Insights podcast, where we discuss our firm's latest thinking on global capital markets, current events and personal finance. My name is Naj Srinivas. I'm a Senior Vice President of Corporate Communications at the firm.

Financial topics can sometimes feel disconnected from our everyday lives. Often our financial goals seem distant, whether it's saving for your child's college or funding a comfortable retirement. It can feel overwhelming to find ways to achieve those goals. To help remedy that, on today's episode, we're going to look at ways to connect your family's financial life with normal everyday life.

And to help us out, we're going to talk to Jill Hitchcock. Jill is the Senior Executive Vice President of our US Private Client Group. She has been helping people to find and reach their financial goals for over 20 years. And she's in a unique position to share some practical financial tips for families, which is what she does in her new monthly column that appears on LinkedIn.

Please enjoy

Naj:

Jill, thanks so much for being here with us today.

Jill:

Thank you, Naj. I’m excited to talk to you.

Naj:

So Jill, a couple months ago, you started writing a column on LinkedIn and it’s also featured elsewhere on the web, but a column focused on family finances and personal finance, generally. What was the impetus for creating this column?

Jill:

Well, I've had the benefit of working with clients now for more than 20 years in my role at Fisher Investments. And you see the same themes come up with clients in terms of their questions and their anxieties. And particularly tied to everything that's been going on in the world with COVID and all of the economic impacts, it seemed like an appropriate time to reach out more broadly and share some of that learning.

Naj:

Let's talk about your first column, which was published in May: “Coronavirus-related Financial Fears Keeping You Up at Night—Here's How a Money Manager Can Help.”

Why is now the right time to write about financial fears?

Jill:

Well, frankly, there's always something to be fearful of. If you look back years and years and years, there are always scary headlines. And so they're always a myriad of worries that have the potential to keep you up at night. But I think it's fair to say that people have even more anxieties recently, whether it's because they saw the market pull back so dramatically earlier in the year, or they're experiencing job loss, or they're concerned about their income in retirement. I think there are even more fears and anxieties. And so it seemed like the right time to start reaching out and give a little bit of context.

Naj:

That's great. And, of course, the media plays into all of those fears as well. People are consuming more media. There's the 24-hour news cycle—serves to hyper-sensitize people to fears and how it impacts them. So what are some common financial fears that people harbor, or maybe share with you in your role?

Jill:

A lot of the fears are very consistent among our clients and you see the same themes emerge over and over. Our clients tend to be in the years where they're either approaching retirement or they're in retirement. And so they worry about things like, are they going to have a consistent income stream now that they've stopped working? How are they going to make sure their surviving spouse is taken care of? How are they going to leave the legacy that they want to leave for their children or their heirs, and generally, how are they going to achieve whatever their own personal long-term financial goals

Naj:

In this article, you propose three ways of working with a good money manager to help people with their fears. The first way that you describe is encouraging honest conversations about money. Can you explain that a little bit?

Jill:

Absolutely. I think it's common to see people not really want to express their innermost fears, particularly to a money manager who they may not know very well. You know, we see clients who feel like they have to put on a brave face for their spouse or for their partner or for their kids. And we really encourage being very upfront and open about what your anxieties are. Sometimes those anxieties are merited, and your money manager will have a tough conversation with you about spending or whether you're ready to retire. But often those fears really aren't merited and they're more tied to pullbacks in the market or gyrations in the market. And what you really need is a forum to express those fears, honestly, and then to have a conversation about what you can do to stabilize your financial situation or what some of the implications may be.

We find that many of our clients listen too much to the news or are too driven by the day-to-day market movements. And often the best thing you can do is simply turn off the news, stop watching it every day and go back to the fundamentals of the long-term plan that you put in play. And having a trusted contact, a trusted counselor can help you get through the really anxiety-ridden times, right? When the market pulls back dramatically, or when there are particular stocks in your portfolio that maybe aren't doing well or you're questioning whether you can truly take the income that you have planned out of your portfolio—having that trusted point of contact who can be a less emotional sounding board for you can be one of the best ways to help you avoid making exactly the worst decision at the worst possible time.

Too often, we see clients and investors make decisions that are based on fear. So if you go back to earlier this year, when the market was falling fast, it was tempting to try to mitigate that damage to your portfolio by selling. Well, what do you do when you sell as the market is falling or you sell when the market has pulled back 20 or 30 or 40 percent? You lock in those losses. That's when you really do harm to the likelihood of being able to achieve your long-term financial goals. And having someone who you trust and who can help counsel you through those tumultuous times can really help keep you on time.

Naj:

So how else can a money manager or should a money manager be helping you?

Jill:

A money manager—a good money manager—helps you in several different ways. First, they'll really take the time to understand your long-term financial goals and to understand what it's going to take to get you from where you are today to where you want to go. They're going to help you craft a plan that gives you the highest likelihood of achieving those goals.

Along the way. They're going to talk to you about how your life situation evolves, right? Because life isn't static. There are going to be unexpected, twists and turns—whether those are personal occurrences in your life, or whether those are geopolitical events or a global pandemic, they're going to help you adapt.

Maybe that's an unexpected expense. Maybe you're going to retire sooner or later than you anticipated. Maybe something happens that changes the income needs in retirement.

And so a good money manager is going to help you navigate those twists and turns and make the adjustments necessary to that long-term plan.

Naj:

Your follow up article in June was I thought a really interesting take on family finances. You talked about naming a chief financial officer, or CFO, for your family. Where did the idea for this article come from?

Jill:

I came up with the idea for this article because it's actually something I do in my own household. And it's actually tied to the assignment of chores for my two sons.

So we sort of half joking assigned them roles and responsibilities. For example, my younger son was designated as the Chief Toilet Paper Officer for our house. So it's his job to make sure all of the bathrooms are well-stocked. And my other son who is responsible for doing the vacuuming. And so it kind of started as a joke to get my kids focused on their chores, but it's also a way of splitting up those domestic tasks that we all have to tackle.

And maybe some of them are a little less appealing. And it's a way to identify the specific responsibilities and accountabilities that go along with having a good financial plan for your family.

Naj:

I know all about roles all too well. Especially recently, as my wife has made me the Chief Diaper-Changing Officer for our newborn in our household.

Jill:

That's an excellent role!

Naj:

One apparently I am well qualified for. So what makes a good CFO in a family? What qualities are important? Does this role automatically go to the person would say a background in finance?

Jill:

Not necessarily. And sometimes in a family, one person might be naturally more drawn to the family finances, but other times it's simply a division of tasks. I think the most important qualifications are a willingness to take responsibility for your current financial situation, your future financial situation, and facilitate the conversations. It's not so much that as the Chief Financial Officer, you're responsible for all of the decisions. Actually, I would say to the contrary; the decisions are very much joint decisions and the non-CFO partner has their own set of accountabilities.

But this is the person who takes responsibility for teeing up the conversations that you need to have, identifying the goals, and then keeping the partnership on track to check in on those goals and revisit them periodically.

Naj:

I love that concept that you talked about in this article was just how important it is for the non-CFO family members to stay engaged. Can you talk about that a little bit?

Jill:

This is something that I feel really strongly and personally about. I lost my husband six years ago and through the process of taking over as our Chief Financial Officer of our family. But also getting to know other people who had been through something similar, you realize how many people don't have the basic fundamental knowledge about the family's finances.

So I have the advantage; I worked in finance. And even though I hadn't been the person primarily responsible for paying the bills, I knew where all of our money was, I knew all the passwords to our accounts and I was very engaged in the process. But I met a lot of other people—and I'm going to generalize here and say that often it was the wife—who didn't have even a foundational understanding of the family's finances.

And if the worst-case scenario comes to be, and you end up on your own managing your finances, whether it's through death or divorce, you really do yourself a disservice by not having a basic understanding. And so I want it to be really clear that just because someone takes primary accountability for facilitating the discussions and the process, the non-CFO partner has the accountability for being engaged and knowledgeable about the family's finances.

Naj:

How can a non-CFO partner actually do that? Is that the responsibility of that person, or is it the responsibility of the money manager or the CFO?

Jill:

It's really a joint responsibility. And I suggest doing a regular “date night” check-in. For me, even though I work in finance, looking at my financial situation is not the most fun thing. I can think of a whole bunch of other things I'd rather be doing with my time. So setting it up in a little bit more of a pleasant way, kind of structuring it as a date night—for me, having a good bottle of wine is key—can help take some of the sting out of doing that. And I think it needs to be a regularly scheduled event, just like anything else on your calendar that you do and you're committed to. I think quarterly, or four times a year, is the right frequency, but for some families that might be more. For some families, it might be less.

Naj:

That's a great segue into the topic of your July article, which was here's why you need a financial date night. So what's the first step in your family, financial date night?

Jill:

So if you don't already have a financial plan for your family, the first step is to start by laying out your long-term goals. So for me, I'm in my forties. I have kids coming up with college expenses in about eight years. And so for me, I'm drawing out what maybe the next 20, 30, 40 years look like in terms of both big expenses I see on the horizon, as well as goals around when I might want to retire, what I might want to do a big trip or other big milestones.

And I'm not a spreadsheet person. And so I don't map any of this out in a spreadsheet. For me, I'm more of a “blank piece of paper, scratch out a timeline” sort of person. And so I think that you start by taking a blank piece of paper and both of you doing that exercise independently to see how aligned you are. You draw out a timeline and you put in the big milestones. And that's a great first step towards thinking about what those goals might be and what those milestones might be. And then comparing the two pieces of paper to see how well aligned you are

Naj:

After you've got your timeline that's been harmonized between partners, what’s next?

Jill:

Once you have a timeline established, then you start looking at inflows and outflows. So, typically, for most people, the inflows are pretty easy, right? You know how much money you have coming in every month or every year. The outflows are a little less fun, and for many of us, it's hard to really categorize or keep track of how much money we're spending.

And I'm a big advocate that it's not the little things, right? It's not the little expenses that will drive you crazy trying to track down every nickel and dime. It's the big expenses that really matter. And what you're focused on is major inflows and outflows. And so do you have an idea of what it takes us to sustain your lifestyle on an annual basis, and whether your saving money every year, breaking even, or going into debt every year. So that's a good starting point.

And once you have an idea of that, then you want to set some high-level goals. So if I want to retire in 10 years, or 15 years, or 20 years, I can do some pretty basic math to figure out how much money am I going to have by then—assuming some realistic rates of return—and whether I'm on track for those goals.

One of the things we often talk to our clients about is that their time horizons, which is the amount of time their money needs to work for them, are often much longer than they expect. So people are living longer. If you have a younger spouse who is likely to outlive you, then you need to factor in that person's life expectancy. If you want to pay for things, maybe like a grandchild's college education or a down payment on a house, but people often underestimate how long their money really needs to work for them. And the implication of that is that people often need more growth from their portfolio than they might otherwise anticipate or expect.

Naj:

Well, that's all the time we have for today. Jill, thank you so much for joining us.

Jill:

Thanks Naj!

Naj:

That was my conversation with Jill Hitchcock about practical tips for managing your family finances.

And a big thanks again to Jill for joining us.

If you'd like to learn more, you can visit the Market Insights podcast page, where we've got links to Jill's recent articles. There's also a link to the page in our episode description.

And if Jill's recent articles sound interesting, you can follow her on LinkedIn to keep up with her latest thoughts.

If you like what you heard, you can subscribe to Market Insights wherever you get your podcasts. You can engage with Fisher Investments on the major social media channels: LinkedIn, Twitter, and Facebook. You can also look for our Fisher Investments YouTube channel.

For our latest capital markets insights, check out the MarketMinder section of our website, Fisherinvestments.com.

And if you have questions about investing personal finance or capital markets, email us. Our email address is marketinsights@fi.com. That's marketinsights@fi.com. We'll answer as many questions as we can in an upcoming Listener Mailbag episode.

Join us for our next episode, when we look at what happens when investing tackles social and ethical issues. On the September episode of Market Insights, our guest will be Seth Groener, a research analyst with Fisher Investments’ Capital Markets Team. He'll help us understand the realities of environmental, social, and governance investing—commonly known as ESG investing.

Until then. I'm Naj Srinivas. Be well, and stay safe.

Disclosure:

Investing in securities involves the risk of loss. Past performance is no guarantee of future returns. The content of this podcast represents the opinions and viewpoints of Fisher Investments, and should not be regarded as personal investment advice. No assurances are made we will continue to hold these views, which may change at any time based on new information analysis or reconsideration. Copyright Fisher Investments, 2020.