Golden Girl Finance - The Financial Voice for Women
Launched in 2008, Golden Girl Finance is Canada’s media leader in financial content for women. We create original and unbiased financial content to educate and inspire Canadian women about investing, personal finance, retirement, philanthropy, and the psychology of money. Follow this site and get content on how to manage finances and money.
Last summer The New York Times ran an interesting story on how to plan – and not overplan – for a long-term trip. Turns out, much of the advice is pretty applicable for long-term investing too. Traders may jet in and out for quick trips, while investors settle in for the long haul, prepared for the vicissitudes and adventures that a lengthy voyage can bring. But first, we plan.
Selecting a destination is nearly always influenced by how much you choose to spend. Similarly, in investing, the first step is determining how much money to stash into savings on a regular basis to build that nest egg. When purchasing equities, price is critical. Setting a target price or dollar-cost averaging, when prices dip, will help to ensure you don’t overpay.
A reliable Wi-Fi connection means no shortage of selfies posted to Instagram and the ability to stay in touch with those at home. The ability to connect with one’s financial advisor is also essential. Find someone with whom you can rely on to return your calls and supply the time you need for updates and questions. For DIY investors, most online trading platforms provide trial accounts so you can get a feel for the quality of the technology before you commit funds.
“The ability to quell anxiety and uncertainty during big market moves is a boon.”
Paperwork is a huge hassle, but if visas and passports are not ready at the border or you don’t have insurance when you need it – no es bueno, no vayas. You don’t want to find out on the day you’re trying to score a great deal on your favourite stock that you can’t buy it because of a back-office filing error. This happens more often than you might think.
The ability to coax yourself into sleep anywhere, anytime is a huge advantage when traveling. Similarly, the ability to quell anxiety and uncertainty during big market moves is a boon. Written criteria for each equity position you hold – when to buy, when to sell, which indicators you trust – provide an objective way to check emotions, stay calm and not get caught up in the noise.
“…not overindulging is also important in investing.”
Eating a balanced diet and sticking to dietary restrictions while traveling can help one’s body go with the flow, so to speak. Maintaining a balanced portfolio and not overindulging is also important in investing. While a stock might be super-hot, loading up on it at the expense of other tried and true performers can create uncomfortable risk, particularly if the stock is extra volatile.
There will always be fees and they can rapidly eat up your budget and your profits. Not all of them are mandatory. Depending on the size of your account or contributions, annual fees can get waived and transaction fees can be reduced. Always inquire about an unexpected fee and chances are, something can be done.
Plans evolve, goalposts move and sometimes, the fundamentals of a company will change, invalidating your reasons for holding it. Allow your portfolio to reflect changes to your personal situation, risk parameters and time horizon. Most importantly, remember that your investments must serve your life, not the other way around. As the New York Times article concluded: “Ask yourself: What do you hope to accomplish… at minimum? Aim for it, but don’t live by it.”
Investors may have been lulled into the false impression that stock markets only go one way – up. The past 5 years were dream years for U.S. stock investors, as they enjoyed returns of 15% per year, while Canadian investors earned good but less-impressive returns of 9% per year. Over the same 2012-17 period, Canadian bonds returned a relatively modest 3% per year.
Let’s look at 3 very different investors: June, Karen and Susan. June, a diversified global investor with an aggressive growth portfolio of 90% stocks, 10% bonds, earned about 10 per cent per year over the past five years. Karen’s conservative portfolio of 30% stocks and 70% bonds earned a much lower return of 6% annually. Susan’s portfolio, held entirely in “cash” – Guaranteed Investment Certificates (GICs), earned a paltry 2% per year over the same period.
It’s easy to see how Susan, and to a lesser extent, Karen, might look at these 5-year returns and tell themselves, “I’ve lost out by holding GICs and bonds, but I’ll make up for it by buying more stocks now.” This is exactly how investors can get burned!
Every investor should set her asset allocation – the shares of total assets held in cash, bonds, & stocks – based on their risk tolerance and time horizon. Stock-market investors must be willing to suffer a loss of about 20 per cent of their investment in any given year. Why would they take that risk? Over the longer term, say 10-20 years, a steep short-term loss will more than offset by longer-term gains.
The rule of thumb for whether you’re a saver rather than an investor is if you need the money within 5 years.
If Karen and Susan were holding the correct balances before, the rise in stocks would mean that Karen should now be holding fewer stocks to keep her asset allocation at her target. June wouldn’t change her asset allocation based on recent returns, since she is still at her target of 100% cash.
The rule of thumb for whether you are a “saver” rather than an “investor” is if you need the money within 5 years. Savers hold cash: savings accounts or GICs, whereas investors play the markets. Susan is planning on a home renovation, so she is not willing to lose any principal. Cash is king for Susan: Holding GICs is a good way to earn a guaranteed, albeit modest, return.
Holding cash is desirable to be able to pick up “bargains”
The other time when holding cash is desirable is to be able to pick up “bargains” in the market. This strategy is only in play for active investors – ones who want to either time the overall market, or select particular investments. Passive investors, in contrast, don’t wait for the best time to invest – they just make regular contributions to index funds and trust in the long-term upward trend in the stock and bond markets.
In our example, June is an active investor who picks dividend stocks and value stocks as long-term investments. From time to time, she sells some of her stocks and holds cash until she decides which stocks to purchase next. Although her goal is not to hold cash for very long, there may be several months when she has her money invested in a money-market fund (easily cashable) while researching ideas for stocks or waiting for a change in market direction.
As every economist will tell you, there is no such thing as a free lunch. What do you give up by holding cash or GICs? Clearly, investors give up expected returns in exchange for expected risk, but there is an additional risk associated with holding cash. This key risk is called inflation risk – the chance that your money will not grow fast enough to keep up with rising prices. In Canada, our inflation rate (the annual rise in consumer prices) is between 1-3%, and typically very close to 2%. If you are earning 2% returns on a GIC, you aren’t making any headway in real terms (after adjusting for inflation). In recent months, GIC rates have become a little more attractive, and now outpace inflation by a small margin.
How risky is June’s strategy of shopping for bargains with cash? If June uses cash only as a short-term strategy, she is not incurring undue risk. The risk to her strategy is, of course, that it is very difficult for an average investor to pick winning stocks…but that’s a story for another day.
“…investors holding out for the ideal buying opportunity sat on the sidelines during one of the best bull markets of the past century.”
Some investors hold cash for another reason. Let’s say they have determined that their asset allocation should be 60% stocks and 40% bonds and they have a lump sum ready to invest. Instead of putting their money in the market right away, they decide to hold off because they want to find the “perfect time” to invest. Every year over the spectacular 2012-17 period, market watchers and investors expected if not a correction, at least a setback in the U.S. stock market and were proved wrong five years in a row. Investors holding out for the ideal buying opportunity sat on the sidelines during one of the best bull markets of the past century.
The key message for investors is to get to your target asset allocation as quickly as you can. Your target asset allocation may include a significant share of cash if either: 1) You have a short time horizon until you need the money, or 2) You are uncomfortable with the risks involved with investing.
Remember this: The number one determinant of investor success is asset allocation.
Rita Silvan, editor-in-chief of Golden Girl Finance talks to Wendy Davis, owner of Zebrano, Canada’s premier luxury travel advisor, about taking the leap to starting her own business.
Wendy Davis founded Zebrano in 1999, Toronto’s leading household concierge service company. Davis is the owner of Zebrano Travel, Canada’s premier luxury travel advisor that specializes in private trips throughout the world.
GGF: How did you start your business?
WD: I wrote the business plan. I did all my numbers. I estimated I would have a certain number of clients. I got some office space, put the shingle out and thought, “let’s go”. In the beginning I would do services for free so people could get used to it.
GGF: Tell us about your first year of business.
WD: Wow! I never truly understood how much work it would be. It’s not like a Tim Horton’s franchise where you get a manual. First, I had to set up all the suppliers. We didn’t know where this would go. We’d get a call to plan a party with hundreds of balloons. Okay, we’ve got to source those. We just had to create everything from scratch.
GGF: Did you have business partners?
WD: I was going to get investors but at the end of the day I decided not to. I wanted to control what I was doing and didn’t want anyone telling me what to do. I spoke to some venture capitalists but it wasn’t the right time as they were very dot.com-focused. I met with the Four Seasons and they were very interested in the model.
You do need capital to get into this business and I had a good chunk of money. It took quite a bit of money before it caught on. But I didn’t wing this. I had a solid plan. I worked like crazy. There is no way with to do this with life balance.
“People don’t value their time and we run around like idiots trying to fit it all in.”
GGF: Did you specialize in event planning at first?
WD: We did some little campaigns to get things flowing. At the time, my husband worked on a trading floor so for Valentine’s Day, for example, we’d do these special campaigns. I realized that working on-demand was not feasible in the long run, so I came to the membership model. The initial commitment was 25 hours at $25 per hour. Today, it’s 60-hours @$100 per hour. $6,000 can change your life. I think it’s a pretty good return on your equity. People don’t value their time and we run around like idiots and try to fit it all in, especially women who don’t let people help. If I had another life, I’d do a lot more counselling with women on how to let go.
GGF: How do you acquire clients?
WD: I introduced Zebrano to the city’s top real estate agents. When an agent would sell a home, it would make sense for Zebrano to whisk in and manage it from that point, especially if the buyers came from out of town because we know all the suppliers. We’re a one-stop shop.
When people move it’s a big commotion in their life. By the time they came to Zebrano they were at the point where they were going to have a nervous breakdown. We have an incredible move program. There will be the bowl with the apples on the table when you show up. And if you have wine in your wine cellar with the bottles in a certain order, they will be just the same way in your new home.
I also worked with investment bankers, divorce lawyers, because that’s another transition point. And word of mouth.
GGF: Did you work directly with corporations?
WD: Initially we went with corporations, but I decided not to use that route. I wanted Zebrano to be personal, not corporate. Each person spends money a different way. Also, I found that most executives prefer that their personal life is separate from their corporate life. However, we’ll do corporate tasks like board of director meetings, gift buying, or event planning for financial deal closings.
“Some of our clients have even asked us what kind of dog to buy…”
GGF: Who is a typical client?
WD: People who are very busy and want to spend time their time with family and friends, traveling, doing physical fitness and they don’t have time for everything. We come into the home and take care of everything: the HVAC, air conditioning, window cleaning… We also supply the suppliers and vet them all. We’ll help people with errands. Some of our clients have even asked us what kind of dog to buy and we’ll research breeders for them.
GGF: Do you come from an entrepreneurial family?
WD: No. [laughs] I’m an athlete, a doer, and goal-oriented. I used to be on the national rowing team. I was always in a team and used to excelling. The bar was always a little bit higher. I don’t have an off-switch which I think is very entrepreneurial. I go in a lot of different directions. I smartly hired a business consultant who I’ve had since the start. He’ll sit me down and say, “no, no, no you’re going on a tangent; don’t spend time doing that.” For example, we came to the realization that our core clientele is really right here in this area in the higher net worth neighborhoods. Oakville was tempting but we decided I should focus on Toronto.
GGF: What three adjectives would you use to describe yourself?
WD: Creative, for sure. Hardworking, I walk the talk; I put my head down and go; and I’m an optimist.
“I’m not a huge risk taker when it comes to investing.”
GGF: Are you a risk-taker in your financial choices?
WD: I’m not a huge risk taker when it comes to investing. My husband who worked in finance would be more of a risk taker, so we balance each other out nicely. Real estate has been pretty solid. We’re pretty good at design. We like a good location. We want to make sure that we buy wisely, and we like architectural homes that have some style.
GGF: What’s the best piece of advice you ever got?
WD: It’s a quote we had at our wedding: “The world is a book and those who do not travel read only one page.”
GGF: What about the worst?
WD: To not trust my instincts. That I always have to hire consultants. I’ve learned to go by my own compass.
“I didn’t know that invoices had to have numbers!”
GGF: What advice would you give your 25-year-old self?
WD: Make sure you surround yourself with great mentors. Don’t rush things. Learn the fundamentals of business, the cashflow and the accounting side of things. Most entrepreneurs can get clients in two seconds, that’s the high but you have to manage how the business works, which isn’t the fun part. I didn’t know that invoices that invoices had to have numbers! When you work for a Fortune 500 company someone else does that. The accounting and human resources management were things that I totally underestimated.
GGF: Imagine you’re looking back on your life, what are most proud of?
WD: I’m very proud of Zebrano. I wanted to build a luxury lifestyle brand and that’s one of my greatest achievements. Rowing was very cool. I’ve travelled all over the world. And being a good person.
GGF: What’s next for you?
WD: As we get older, things are changing. We don’t need as many things anymore. We’re thinking about what we need for the rest of our lives and philanthropy is starting to come into it. I don’t have children. I’m an animal lover; that’s a big thing for me. One of the groups I support is Soi Dog (https://www.soidog.org) in Thailand, that is a rescue for stray dogs to prevent them being used in the meat trade. Soi Dog spays and neuters the dogs and do many other good things. I also support protections for the mountain gorillas.
GGF: You travel a lot. What’s left on your bucket list?
WD: Japan. Patagonia. Galapagos.
GGF: What tips can you share with our readers on how to travel better?
WD: Stick to places that are easy to get to like London or Paris. If you’re using points, plan well in advance for more options and better pricing. Don’t leave it to the last minute. Come up with 3-to-5-year travel plans. The new thing is lifetime travel plans so you can finance the bigger trips. Don’t pack much. Use a carry on, so it’s easy to get from place to place.
According to a 2016 McKinsey report, investors may need to start lowering their expectations due to anticipated diminished returns. So, what to do? Spend less?
That doesn’t sound very fun to me! And if you’re human, it’s difficult to implement an effective strategy to reduce spending. Elin Helander, a cognitive scientist at Dreams in Stockholm. Helander explains:
“I know myself. I knew that I would have to set up some sort of a structure to separate my spending from my savings. This mental accounting is critical because otherwise if I have the opportunity to do something I will always choose to take it. My brain has a way of rationalising reasons to spend money: “Don’t I need a new bag? Yes, I do need a new bag. It’s a good deal. My old one is too small…”
Here’s my advice:
#1 Get to know the fine details of your overall financial situation.
Your investment portfolio is only one piece of a much larger puzzle.
I worked for over 20 years as a portfolio manager advising high-net-worth clients, and I can tell you that fewer than 10% had spent the time and energy on a professionally prepared financial plan. Why not?
Part of the problem in our industry is that it’s still very difficult for people to find unbiased financial planning advice. Most planners are associated with banks or mutual fund firms and they are paid (either directly or indirectly) to sell investment products. These financial plans often look suspiciously alike and they usually don’t go into the necessary amount of detail.
I recommend taking the time to find an independent financial planner with a strong reputation. She will be worth her weight in gold.
Rona Birenbaum founded Toronto’s Caring for Clients – a fee-based financial planning firm. I spoke with Birenbaum about today’s concerns about return expectations and her approach to financial planning:
“It’s a timely topic because it is a common heuristic to assume that future returns will be similar to the most recent past, whether positive or negative. In the late 1990s I was seeing financial planners using 8 and 10 percent return assumptions in long-term retirement plans. They were looking at the previous 10 year market returns and extrapolating. Very dangerous. The following 20 years were terrible for equities and those who made saving decisions and spending decisions on an overly optimistic plan assumption paid dearly. When other planners were using 8 and 10 percent assumptions I was using 5 and 6 percent assumptions and these days I use 4% as my return input. Sometimes I have to make a case as to why the assumption is conservative but once I do clients understand and appreciate the approach.”
#2 Be open-minded to alternative asset classes
Consider allocating up to 20-30% of your investment portfolio to alternative asset classes such as private equity, commodities, real estate or something that resonates with you personally such as a gender equality fund.
Take the time to do your research so that you feel comfortable with the risk/return profile of each alternative. Adding non-traditional asset classes will not necessarily lead to better performance depending on the mix selected, but this strategy is likely to provide a smoother ride (lower risk or lower volatility) for investors. As outlined in this Goldman Sachs report, diversifying into alternative investments can offer similar potential returns with lower risk.
#3 Reduce your expectations and don’t chase returns!
When the expected return drops, some people think to themselves “I don’t want to make 5% returns, I still want to make 10%” and they promptly rush out and buy products that seem to offer higher returns. In my experience, this is an unwise approach. These seemingly attractive products don’t usually end up producing higher returns: instead they are almost always riskier and lead to worse financial outcomes.
A much safer strategy would be to accept the reality of the current investing environment. Stop thinking about the way things used to be. Are 5% returns really so bad? Let’s look at an example.
If you invest $250,000 today and it produces an average annual return of 5%, in 10 years time you will have $407,224 and in 20 years time you will have $663,324. That is assuming you let it compound, and never take any money out.
The bottom line on how to handle lower future returns? Build reasonable expectations into your detailed financial plan. Then stick to the plan and don’t worry, be happy!
According to a recent study commissioned by the Bank of Montreal, only 16% of Canadian women consider themselves aggressive investors (compared to 30% of men). The report says this like it’s a bad thing. Funny, because all the data shows that women are better investors than men, both in regular households and in jobs like hedge-fund managers.
Self-serving, banks and investment companies are more adept at scaremongering than they are at returning shareholder value. Newspapers blast headlines like, “New bank study says you will outlive your money!” “Leading economist says GICs give negative returns!” “Will you ever retire?” These alarmist pronouncements jolt us with nightmare visions of working at 75 as Walmart greeters in support hose or frothing lattes with our arthritic fingers as Starbucks’ baristas. And because women live longer than men—in the UK, for example, five women will receive a personal letter from the Queen on their 100th birthdays to one man—their money will have to last a lot longer. Not to mention that the average woman will have less of it to go around. (A recent US report showed that by the time a woman is 64, she will have forfeited $430,000 due to wage gap.)
Now for the good news. We’ll be fine.
Contrary to popular belief women have several traits that make us superior investors in both bull and bear markets. Unlike men who treat investing as a competitive sport, women do a lot of research before making investment decisions and tend not to impulsively jump on ‘hot tips’. We take a long-term view and, therefore are less likely to trade frequently and incur commission charges that cut into returns. For example, when the market crashed in 2008, women typically stuck with their investment strategies whereas the average male investor sold his holdings taking a loss.
Neuro-econonmist Paul Zak attributes these behavioural differences to the hormones testosterone and oxytocin. The greater concentrations of testosterone in men leads to risk-seeking behaviours and high degrees of emotionality. Whether that expresses itself in acts of heroism, bar fights or investing in junior mining stocks, is, of course, up to the individual. On the other hand, oxytocin, found in higher concentrations in women, gives a calming influence which may partly explain why female investors are less likely to panic and sell into a down market.
In her book, Warren Buffett Invests Like a Girl, LouAnn Lofton analyzed the ‘Oracle of Omaha’s’ investment style and found that he fit the female pattern: a buy-and-hold, value investor who does his homework. When asked about the claim, he answered, “I plead guilty.”
How odd then that BMO would say that women need to become more aggressive investors. Perhaps what they really mean to say is, “Please, pretty-please won’t you trade more so we can meet our quota of commission fees?” Have they not seen the study that analyzed 35,000 American households and found that men traded 45% more than women and reaped returns that were 1.4% lower? The returns of single men were even worse: 67% more trades than single women and a comparable 2.3% loss. So, if BMO really wants to help Canadians save for retirement, it should coach men to invest more like women, not the other way around.
This essay was originally published on theloop.ca.
When you’re employed by a company, there’s a chance you’re getting a bit of a boost when it comes to investing. Maybe there’s a group RRSP where contributions are matched by your employer — or at the very least, you’ve got a steady paycheque, a part of which can be regularly allocated towards investments.
But for freelancers whose pay is anything but consistent, investing might seem like one of those tasks that needs to wait until you have more money coming in.
As many as one quarter of Canadians categorize themselves as self-employed sole proprietors or temporary workers, according to Statistics Canada and Advocis, and while they may have flexibility in terms of time and the amount of work they take on, there is often a tradeoff in the form of ‘variable’ income. And don’t forget — most are also funding their own retirement savings plans, health benefits and disability insurance coverage.
We all have similar goals, say financial planners – things like retirement, a child’s education, a car purchase — so, how do you invest towards these aims when you’re self-employed? Freelancers may need to take a slightly different route to get there. Here’s how to start:
“Demystify your cash flow.”
Know where you stand: For freelancers, income fluctuations can make it difficult to know how much to allocate towards investments, or even where to find the extra money.
To start, self-employed individuals need to ask themselves ‘What do I actually need to make to be able to sustain my life and reach my goals?’ — which should not only include living expenses, but also a cash cushion, taxes, a disability insurance policy, health benefits and longer-term investments for things like retirement, explains Noel D’Souza, an online-based certified financial planner and money coach with Money Coaches Canada.
Indeed, Chris Enns, a Toronto financial planner who focuses on clients with non-traditional work lives and variable income, suggests self-employed individuals begin by spending some time with their finances, which will help them put concrete numbers on how much they need in order to run their businesses and lives for a month.
Only after you’ve demystified your cash flow, he says, can you know exactly how much you’re working with for investing purposes.
Start small: When you’ve crunched the numbers and you’re ready to invest, automating regular contributions is a good habit to get into, and is often advised for those who earn a salary. But what about those with variable income?
It can be tricky, says Enns, but the key is get into the habit early by picking a level of automation that doesn’t cause you financial anxiety.
“Just saying ‘I’m going to start with $5 a month because that doesn’t stress me out’, or $20 or $50, and then from that point, when I make more, I have something to amplify. It’s easier to add a zero to that automated payment than it is to set up the whole thing,” he says.
Weigh your best options: Those who are self-employed do need to have a bit of a ‘crystal ball’ when it comes to understanding how their income might change over the coming year, as that may affect their choice of investment vehicle, says D’Souza.
“They might plan a little bit differently in terms of where they invest this year and what they’re going to do next year, which is something an employee generally doesn’t have. Their income is almost never going to be lower the next year than it was the previous year until they retire,” he says.
“Maybe I’m looking at a TFSA when I start out and I’m fairly low income, and when I expect my income to grow and I’m starting to make pretty good money, up into the — maybe into the $60-$80,000 or more range — now I’m going to focus much more on RRSPs,” he adds.
As they approach retirement, freelancers may also want to consider investment vehicles that are less popular with those who have pensions — for example, annuities that provide a guaranteed income stream for life, he explains.
“Demystify your cash flow.”
Monitor regularly: Having a handle on your income is key (not just at tax time), says D’Souza, so that if adjustments need to be to the amount being contributed, this can be done before problems compound.
“Maybe they were investing as if they were making $80,000 but they only made $60,000 and maybe now they’re going to have to pull money out of their RRSP, which is really painful,” he explains.
Instead, says D’Souza, if your income level has dropped, this has be taken into account in the context of your investment plan, in order to figure out what failing to make a contribution will mean in terms of having to play catch-up in the future.
Divide and conquer? Splitting household responsibilities between spouses might seem more efficient, but some things are just too important to leave to someone else.
Key findings of a recent study published by UBS Wealth Management USA, reveal that 56 per cent of married women still leave the investment and financial planning decisions to their husbands, mainly because they believe their husbands know more about these topics. Surprisingly, millennial women are even more likely to follow their mothers’ example, with 61 per cent leaving investment decisions to their spouse.
This decision has a serious downside, as most women will end up alone at some point in their lives —without the financial skills and confidence to manage their affairs. Ninety eight percent of widows and divorcees interviewed strongly advise women to take an active role in their finances now.
Getting started is straightforward
Get Help – You Don’t Have To Be an Expert to Get What You Want
Despite what you hear, most investors are not skilled “Do-it-Yourselfers”, although one partner often has slightly more knowledge and interest than the other. Most successful investors, male or female, hire a financial professional to assist them, just as you would retain an expert to assist with any other aspect of your life. Document what you want out of the relationship with an advisor, what it will cost, and how you will measure success. Discuss these goals with your partner, noting any differences of opinion. If you’re asked to complete a questionnaire about your financial goals and risk tolerance, consider completing it separately from your partner.
Commit to a Full Financial Planning Process
Investing cannot be done in isolation. A detailed financial plan, done early, will ensure the household is on the path to success by examining all aspects of your life strategy including budgeting, retirement planning, tax, risk
management, legal, estate planning and investments. A dynamic financial life strategy starts by setting goals and establishing a roadmap to achieve them, taking into account the unexpected. Experts in investments, tax and estate planning are all part of the team working together to make you successful. The plan should be reviewed reviewed regularly and anytime you experience a major life event.
Interview Financial Professionals Together
A couple’s decision to hire a financial professional must be made together. Create a short-list of firms you will interview. Take notes and evaluate each on a short-list of key criteria that are important to both of you. Understand that your criteria may be different than your spouse’s, but equally important. There needs to be a high level of trust and comfort among both of you. Does the financial professional speak to each of you? Are they asking how you each feel, what you each think, if you each agree? Do they ask what is most important to you? Would you feel comfortable dealing with this person if your spouse wasn’t with you?
Plan to be an active participant in all portfolio and financial planning meetings. It’s best if one partner does not do all the talking. Prepare your own questions. Get to know the other members of the financial professional’s team and the full range of services offered to you. Know who to call if you have a question or want to conduct routine business. Take turns doing this so that you both build a trusted relationship and comfort level with the people serving you.
Insist on Plain Language
Ask questions and insist on plain language explanations. The finance industry is rife with jargon, and professionals sometimes get caught up in their own terminology. You are not expected to know all the technical terms a financial professional might use, any more than you would those of your doctor, lawyer, or real estate agent. They must speak your language. If you do not understand, ask again and don’t go away unsatisfied.
Take an Active Interest
As with anything in life, understanding leads to engagement. We all have our favourite pursuits, and others we care less for. Learning to build a successful financial life strategy is interesting, empowering and opens many doors. It begins by participating in meetings, asking questions, attending a seminar, webinar or reading a book.
In our practice, we often hear one partner say, “my spouse has no interest in this and leaves it to me.” Asked directly, however, (she) will usually say, “I don’t understand it, so I leave it to (him)”. Armed with some basic financial knowledge and the confidence it brings, building wealth together will become an activity you manage together.
Rita Silvan, editor-in-chief of Golden Girl Finance talks to Rona Birenbaum about how a financial plan is like your personal GPS.
Rona Birenbaum is a Certified Financial Planner and the founder of Caring for Clients. She was recently named a Women of Influence in financial services. She writes a personal finance column for The Globe and Mail and volunteers in the Toronto Public School System to enhance student financial literacy.
GGF: How did you get into this field?
RB: I did a business marketing degree at night and worked during the day as a teller at a credit union. I ended up in management but decided that I wanted client facing work. Then I worked in the brokerage industry but that wasn’t a fit either because it was sales. When my child was born in 1999, I worked from home for 4 months and when I came back I was an independent.
GGF: What are the biggest misconceptions about financial planning and financial planners?
RB: The biggest one is that financial planning is the same as investment strategy. It’s more like life planning through a financial lens. The process is a lot more fun than people think. It’s an opportunity to envision the future and participate in the crafting of that future. I dive into conversations about people’s values and goals.
GGF: What are the most common reasons people see you?
RB: When an important decision needs to be made and the person is either uncertain or is at odds with other stakeholders, we’re the tie-breaker. Also, people who are fast approaching retirement and have less runway to change their trajectory want to know what the future looks like and plan for it.
GGF: What’s the best time to work with a financial planner?
RB: It’s when you don’t need it. Just the same as applying for a line-of-credit when you don’t need it or visiting a doctor when you’re well. If two years after you get your plan done you get laid off, it’s very easy for a planner to recalibrate the plan, like GPS, so you don’t get derailed.
“[Women] have dreams for themselves and they’re not waiting for a partner to make that happen…”
GGF: Why do women take the backseat when it comes to family finances?
RB: For the Baby Boom generation and older, that dynamic is entrenched. In young couples we work with, from their late ‘20s to mid—40s, the division of labour is more based on who is good at what and who wants to do it and enjoys it. Also, there are more 2nd and 3rd relationships and those couples come in with their own assets.
Women are getting much more involved in financial planning and decision making because more of them are single longer. They have dreams for themselves and they’re not waiting for a partner to make that happen, whether that’s home ownership or whatever. They are realistic about the possibility that they may not have a life partner to share financial responsibilities with and they’re okay with that and they’re going to take control of their lives.
GGF: There’s this idea that men are the earners and women are the spenders…
RB: It’s baloney. This came out of a prior generation when men made the money and the women spent it because they did not earn an income. They got an allowance, like my mother. Who’s the spender/saver is not gender specific. Often the reason people come to us is because there is a disconnect: one is being too conservative and the other too frivolous. A planning process can help create clarity and reduce the emotions around that.
GGF: There’s a popular narrative with bloggers about “not spending for a year”. What would you say to people who want to enjoy life without hurting their financial goals?
RB: It’s math. My perspective is about balance. To get to retirement but to have never lived is not necessarily a good move. Together, we figure what you need to do to paint your retirement picture and then the rest is your fun money. People are bombarded with extremes of either frugality or excess. They fail to see that there’s a middle way.
GGF: Do men and women view money differently?
RB: There are no gender differences. You often read how many men are more aggressive with their investments, or women like the security of real estate. People fall into 2 categories: more or less conservative. That shows up in how they invest their money. It’s pretty fixed. A leopard doesn’t change her spots.
“Any business that wants to treat women like human beings has an opportunity to make in-roads.”
GGF: What are some common financial mistakes?
RB: Buying real estate out of country because the sales agent says you’ll rent it out and make a killing. Inappropriate use of leverage in investing and then having to sell something at a bad time and being left with debt. Not being adequately insured: I’ve seen a widow come in with two young children and no insurance. After the financial crisis, it was people who sold when they shouldn’t have sold and people who didn’t invest when they should have. Parents giving too much away to their children and leaving themselves vulnerable…
GGF: Should women have their own separate accounts?
RB: Everyone should have her own chequing account to accumulate money where she doesn’t have to ask anyone to get it or it couldn’t be cleaned out as in a joint account. Plus, if you want to buy your partner a gift, you can do it without them looking at the bill. However, I don’t think money should be hidden from the other. If a couple is building a life together, then completely separating finances means you’re not optimizing your debt reduction or tax strategies. Also, if you’re avoiding some really good financial planning decisions because you’re afraid, then there’s something else going on.
GGF: We’re at a tipping point in terms of financial services targeting women…
RB: It means that the market is big enough to justify the investment. There are enough women who are working and making financial decisions that companies want to target them. Women, from a financial standpoint, have been largely ignored by the industry. I frequently hear from clients that, “the advisor never looks at me, always talks to my husband or treats me like I don’t know anything, like a child.” Any business that wants to treat women like human beings has an opportunity to make in-roads.
GGF: What impact do relationships have on our financial plans?
RB: Huge. Parents teach us about money for the first 18 years. A scarcity mindset or sense of entitlement comes from our upbringing. A lot of repair has to happen after the fact. Siblings can also have a big impact if there’s competition or feelings of dissatisfaction with career achievements.
Of course, choosing your life partner is a big one. Common issues are what each partner’s financial contribution is and their money values. Relationship stability affects our money because divorce is extremely costly. And then it comes back to parents if there’s an inheritance which can be a game-changer.
“…home owners tend to do better than renters.”
GGF: How important is home ownership for financial success?
RB: It’s as much an emotional asset as a financial one. Owning your own residence has an anchoring effect. It gives a sense of being grownup. From a financial viewpoint, it’s a smart move. When we do our financial plans, home owners tend to do better than renters for several reasons: a home is a leveraged investment; the appreciation on a principal residence is tax-free; and it’s a forced savings plan. As long as the real estate purchase is sensible and within the realm of affordability, then it’s advantageous. The caveat is, for people who want or need a lot of geographic flexibility, then the transactional costs can be too high.
GGF: Should people strive to pay off their mortgage before retirement?
RB: Ideally, yes. However, if it’s a modest mortgage at a reasonable interest rate and you don’t want to downsize, then it can work. It depends on your cash flow and the size of the asset. I would say that people shouldn’t expect to extract a lot excess cash from their property unless they plan to downsize and move to a much smaller town.
GGF: What was one of your financial mistakes?
RB: In 1989, my boyfriend at the time and I bought a pre-construction condo. By 1991, the value dropped so we couldn’t get financing unless we came up with another 25K which was a lot of money then. I had to borrow it from my Dad and it took me 15 years to pay him back.
GGF: What do you scrimp on?
RB: Clothing. I buy consignment. I buy nice clothes but won’t pay the retail prices. Also, I buy a modest vehicle that I’ll own for 10 years.
I used to be an over-scrimper. My mother grew up poor and is afraid of never having money. I shed my overly frugal mindset when I married my 2nd husband because he knew how to live. That’s when I started travelling. I like the balanced approach much better.
GGF: What do you splurge on?
RB: Art, wine, travel. I collect wine. I love art. For me, art is actually a very sensible splurge. I don’t buy it for its appreciation potential but because it feeds my soul.
GGF: What spending lesson would you give your 25-year-old self?
RB: Respect how hard you worked for the money and take better care of your things so they last.
GGF: At 95-years-old, looking back, what would you appreciate about your life?
RB: That it felt good to give and share with others.
It takes 26 hours for the average person to report a lost wallet and 68 minutes for a lost phone. Now imagine what would happen if your entire online presence was deleted? Poof!
Like everyone else, Canadians are relying more on digital devices and online accounts— and accumulating significant digital assets along the way. A recent Deloitte report estimates that by 2020, the average Canadian will have accumulated $10,000 worth of digital assets over a lifetime. As digital assets grow, so do the challenges of estate planning.
What’s a digital asset?
It’s digitally stored content or an online account that is owned by an individual. Digital assets fall into one of 3 categories:
Personal (email, photos, music, loyalty programs)
Social (Facebook, Twitter, Instagram, LinkedIn)
Financial (cryptocurrencies, bank accounts, PayPal, credit cards, tax documents)
“More than 10,000 Facebook users die every day and these dormant accounts continue to receive friend requests…”
Why is it important to plan for digital assets in death?
There are two kinds of digital assets: monetary value and sentimental value.
For financial assets, having the deceased’s email addresses and passwords gives access to bank accounts, trading accounts, PayPal, eBay, credit cards and loyalty point programs.
Then there are email accounts, as well as other digital accounts on laptops, mobile phones and on cloud computing platforms, that may contain photos or other content that has sentimental value to family and friends.
When it comes to social media accounts, each platform requires, at a minimum, various forms of identification or proof of death to delete a profile. For example, more than 10,000 Facebook users die every day and many of these dormant accounts continue to receive friend requests, get tagged in photos, and push out “Wish Jane Smith a happy birthday” messages to friends and family.
“Of key importance is having a comprehensive, up-to-date list of accounts and passwords.”
How to create a digital estate plan
Technology changes fast, so what’s the best way to do digital estate planning? We asked Toronto lawyer Rebecca Fisch, who specializes in estate planning and administration.
The first step in the estate planning process is to make a list of all valuable assets, including digital assets or online accounts.
“Digital assets are not really handled any differently than other personal effects. What’s important is to make sure that you have a list of all of them and how to access each one,” says Fisch. If the digital assets are significant, you can have an additional clause, separate from your personal effects clause, in your will. Of key importance is having a comprehensive, up-to-date list of accounts and passwords. The list should be updated regularly and kept in a safe place.
She recommends thinking beyond only your financial accounts passwords. You should also include passwords for email, social media, laptop and phone passwords. “In today’s climate, with the revelations of the Facebook data leaks, Facebook, Google or Apple are reluctant to give up someone’s password, even if they are deceased. New increased security measures mean that executors and family members of the deceased will have a harder time accessing these accounts,” says Fisch.
Accounting for digital assets in estate planning is still relatively new. However, with the rapid pace of digitization and technological development, there’s a high likelihood that eventually these assets will eclipse the value of our physical assets. Good record-keeping for our financial and sentimental digital assets may make things a little easier for those we leave behind.
Celebrities and social climbers collect Warhol but what did Warhol collect?
“Keep the coffee tins—aluminum might go up!”
“Keep the batteries—copper might go up!”
According to Bob Colacello, who worked with Warhol as the editor of Interview magazine and as his unofficial sales agent, “Warhol was not a collector; he was a hoarder.”
When Colacello worked with Warhol, a portrait started at $25,000; they’re worth millions today. The key was to lure socialites to commission them. “Pretty society women wanted their portraits done but it was their stockbroker/private equity husbands who were going to pay, so Andy would tell me to play up my Republican side,” says Colacello.
“A client once paid Warhol with an large, uncut Colombian emerald.”
It was society “walker” Jerome Zipkin who amped Warhol’s fortunes. He gave subscriptions to Interview to all of his ladies—party circuit regulars like Betsey Bloomingdale, Nan Kempner, and Carolyn Roehm. The magazine, which was launched in 1968 was shuttered this month. It had switched from covering film criticism to interviewing famous people and became the definitive pop journal of downtown Manhattan. Society types tripped over each other to land on the magazine’s cover. Colacello pocketed a small commission for each portrait he sold. Once, when a client paid for her portrait with a large, uncut Colombian emerald in lieu of cash, Warhol offered Colacello his own portrait as commission. “He told me he knocked $3,000 of the price,” says Colacello.
Despite Warhol’s legendary tightfistedness, Colacello managed to amass a small collection of his work. “I wish I hadn’t sold because it kept going up in value. Still, it did buy me a place in East Hampton.”
Today, buying a Warhol is like buying shares in Microsoft. Solid, not sexy. But that’s where the similarities end.
Unlike the major stock markets, the art market is insular and lacks transparency. Amazon and eBay may sell fancy pictures but the real big money deals are typically made privately. Price manipulation is the name of the game because dealers are expected to nurture artists’ careers. To do so, collectors are discouraged from selling works in the open market, and if they do so, gallery owners will bid up prices to keep the mystique alive. Because buying art is aspirational, not being able to sell a piece at auction could be career-ending for an emerging artist.
Liquidity is another issue. Even more than in real estate, sometimes there’s absolutely no demand for a work of art. Like other ‘alternative’ investments, returns from art are all over the map. However, due to high transaction and commission costs, realistic net returns over a 5-year holding period hover between 1%-5%. Not great shakes.
“Being an art collector raises your social capital.”
So why invest in art? Well, it’s pretty. What you lose in financial return you potentially gain in everyday pleasure and social cachet. It’s doubtful that gazing at your quarterly investment statement provides the same spiritual uplift. Being an art collector also raises your social capital. There are art openings, cocktail parties, meet-the-artist fetes and so forth. It’s a special club—particularly at the upper echelons—that provides a global passport to hobnobbing.
But if the art market is a little too rich for you, then follow Warhol and invest in physical commodities. Gold, aluminum, copper, iron…demand is bound to pick up one day.