Even the world’s greatest athletes need coaches to help them hone their talent. Likewise, so do the most capable investors. This is especially true during times of economic downturn, when investors’ fear can influence their behavior and, as result, endanger everything they have worked so hard to build, according to Charles J. McNamara III, LUTCF, CMFC, a financial planner with McNamara Financial Group in Doylestown.
McNamara cites a recent study by a large mutual fund company1 that suggests best practices such as behavioral coaching, rebalancing and asset allocation, as well as a spending strategy can contribute significant value, or “about 3 percent” in net returns, to an investor’s portfolio. These best practices, incidentally, are built into a well-conceived financial plan architected by a financial planner.
“Without the proper guidance, an investor might be putting their money in or taking their money out of the market at the wrong time, because they are following the herd,” he says. “Also, if those transactions are not handled properly, that can have huge tax implications. By having a financial plan in place, and sticking to that plan, you can avoid making kneejerk reactions and emotional decisions that could undo all the good things you have put in place.
In other words, the planning, discipline and guidance offered by an experienced financial planner can be of tremendous value.
“Depending on a person’s age and time horizon, asset allocation is set up to maximize an investor’s returns 10 or 20 years out, so it’s best not to make a rash decision now based on something temporary, like the price of oil,” McNamara says. “Investors have to remember that the money they have invested is not ‘real’ until they buy or sell; a ‘loss’ becomes a real loss when you sell. You’re not going to buy or sell a house based on an up or down statement, so why would you sell off valuable investment assets because of a short-term event?
“We also see some people with 15 or 20 bank accounts, and I think that goes back to a Great Depression mentality,” he continues. “Maybe they have a Roth IRA here and another retirement fund there, so they have their money spread out in all these different vehicles but there’s no purpose to it and nothing is working together. We try to consolidate to make sure a client’s money is working for them as effectively as possible, and help ensure they’re taking the money out efficiently from a tax perspective. At the same time, we’re helping ensure they have all their wills and estates in order.”
Although receiving a customized financial plan comes with a cost, its value is well worth it. After all, a thoughtfully curated plan not only puts disciplined investors in a position to reach their long-term investment goals, but also offers benefits beyond ones and zeros, according to Ricardo J. Ferreira, a financial planner with McNamara Financial Group. One of the most vital is peace of mind.
“People with a financial plan tend to feel more confident than those who don’t because they have taken the time to think things through and they have a target in mind,” Ferreira says. “You have some studies that show people who make $50,000 to $100,000 a year and have a financial plan tend to feel better about the future than those who are making over $100,000 a year but don’t have a financial plan. 2
“We all have a lot of demands on our time, so when people finally sit down to see where their money is going, they are often amazed at what they find,” he continues. “We can help them realize they may be paying too much on certain loans, in which case we will advise them to see a loan officer. Or it could be something smaller, like realizing they’re overspending by going to Starbucks 15 times a month. No matter what it is, we’ll uncover something that will more than cover the cost of the financial plan.”
With every client, McNamara Financial Group begins the process of developing a forward-thinking plan by working with the client to define his or her goals for the future.
“Someone might say they want to retire at 66,” says Ferreira. “OK, now what does that mean? Maybe it’s renting an RV and traveling the country for a year, or maybe it’s selling the family home and moving to South America. No matter what it is, we want to help make sure you can afford the lifestyle you have in mind. Once we have the goals defined and the cash flow set, then it’s a matter of bringing things online—and we haven’t even talked about investments or life insurance and disability income insurance [*] at that point.”
Ferreira acknowledges that most people don’t want to think about their own mortality or the possibility of becoming disabled. But forgoing such conversations, he suggests, can have far-reaching consequences.
“People tend to tell themselves, ‘I have disability income [insurance] through work, so doesn’t that cover it?’” he says. “For example, even if you’re making $100,000 a year, you’re probably spending close to everything you make, so all of a sudden, if you’re unable to work and you have a 50 percent benefit through work, that’s $50,000. You also have to pay out $10,000 in taxes, so can you live on $40,000 per year? We look closely at each situation and help [clients] make the determination as to whether they might need something supplemental.
“If you get into the unfortunate situation of not having enough disability insurance, it could potentially send someone into bankruptcy,” he continues. “That’s why we like to make sure people have it in mind as we’re working with them on their financial plans.”
In addition to Ferreira and McNamara, McNamara Financial Group’s client-management team includes a third partner, Charles J. McNamara Jr., CLTC, who is also McNamara’s father, and Lori Carroll, who serves the firm as office manager and marketing assistant. Regardless of which team member a prospective client first comes into contact with, McNamara says it’s never too early—or, for that matter, too late—to begin the conversation of crafting a financial plan.
“The earlier you start, the better,” he says. “The financial planning process can help you develop an asset allocation for each ‘bucket’ of money in your life—retirement, children’s education, an emergency fund, etc. We talk about the purpose of each of the different buckets, how to have each of the buckets invested, how much risk to assign to each bucket, and how and when to withdraw from each bucket. The plan brings all that into perspective, and we guide the client through that process.
“Our clients are our No. 1 priority,” he continues. “There will be ups and downs along the way, but our job is to help maximize the money our clients are making, and that’s what we have in mind from the first time we sit down with them and put pen to paper.”
McNamara Financial Group
450 East Street, 2nd Floor
Doylestown, PA 18901
215-348-3176
www.mcnamarafinancialgroup.com
Offering financial planning and investment advisory services through Pruco Securities, LLC (Pruco), doing business as Prudential Financial Planning Services (PFPS), pursuant to separate client agreement. Offering insurance and securities products and services as a registered representative of Pruco, and an agent of issuing insurance companies.
McNamara Financial Group is an independent organization and is not an affiliate of Prudential Financial. McNamara Financial Group sells life insurance products of Prudential Financial’s affiliated life insurance companies in addition to products of non-affiliated insurance companies.
This material is designed to provide general information in regard to the subject matter covered. It should be used with the understanding that we are not rendering legal, accounting or tax advice. Such services should be provided by your own tax professional.
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1 Vanguard, March 2014
2 Public Awareness Campaign, July 23, 2012
[*] The availability of these products varies by carrier and state.
Photograph by Allure West Studios
