Our Answers to Three Questions

I’m writing this so that we can send it to potential clients after they inquire about working with us.I’ve written about the three questions you should always ask an advisor (see here). Today I’m going to give you HWM’s answers.

How do you get paid, how often do you get paid, and who pays you?

We charge based on a percentage of the assets we administer on your behalf. All fee models have pros and cons. We chose an asset-based fee because it has the fewest cons.

Here’s our fee schedule if your investments are worth more than a hundred thousand dollars.

$100,000 – $249,999: 1.50%
$250,000 – $499,999: 1.25%
$500,000 – $749,999: 1.00%
$750,000 – $999,999: 1.00%
$1 million – $2 million: 0.75%
Greater than $2 million: 0.50%

If your investments are worth less than a hundred thousand, we use what’s called an A series mutual fund as your investment vehicle. The funds we use most often have a fee of 1.4 percent a year. One percent goes to us for the advice we provide, and the rest goes to the investment firm to invest your money.

Fees are deducted automatically from your accounts on a monthly or quarterly basis. You never receive an invoice.

What am I paying for?

Our job is to find out what you want and then give it to you. That sentence implies a lot because if what you want is dumb, we aren’t going to give it to you. What’s dumb? Penny stocks, day trading, gambling, thinking an investment is a financial plan, and anything illegal.

But most people want financial stability or security, to live without worrying about their finances (or that they aren’t going to run out of money before they die), or to have someone there to help them during the good times and guide them during the bad times.

You ultimately get to decide where you see value (see here, here, and here).

What would you do if you were in my shoes?

Many of the posts on this blog explain what I would do and what I believe. It’s one of the most important reasons this blog exists. What follows is my best attempt at articulating my own financial beliefs.

Important note: these are my beliefs and they might not be optimal.

On investments

I’m still a long way from retirement, so I have no need for a war chest in case of sequence of returns risk (see here and here). I don’t think bonds have any value to long-term investors at all (your situation and risk tolerance may say otherwise).

As a result, every penny of my and Carley’s retirement assets are invested in the Dimensional Fund Advisors Global Equity Fund (note all the disclaimers at the bottom of this page, please). That’s the fund I mentioned above in the fee section, the one with the 1.4 percent fee.

I don’t believe in investing in individual stocks. I believe that risk premiums drive returns. Enduring what risk premiums throw at you is a normal part of investing, no matter how ugly they get.

I don’t consider real estate investing. I think it’s buying a job. It’s expensive, stressful, and reliant on far too many variables.

On mortgages

I don’t think mortgages are debt. I think they are leverage. They can’t compound against you, and a lot of equity in your principal residence just sitting there would be better off invested. If you want to be mortgage free come retirement, perfect. That’s cash flow planning.

But aiming to be mortgage free as soon as possible means you’re being robbed of the benefits of compound growth you’ll find investing in the stock market.

On estate planning

Too many people don’t have a will. And those who do often name inappropriate executors. I wouldn’t wish being an executor on my worst enemy (unless they’re a lawyer or a retired banker).

On budgeting

Allocate to your long-term savings first. A group plan through work is often a perfect method. Use your credit card for all spending and pay it off before the deadline. If you don’t have enough money to pay off the credit card, stop spending so much. If you have money left over, invest it.

On cash flow

If presented with the option of being cheap or working a bit more, always work a bit more.

Those are just some of my beliefs. If you want to own bonds because they might minimize volatility, or pay off your mortgage as soon as possible, or invest in a triplex (i.e., buy a job), appoint an executor with no financial or legal experience, pay for everything with cash and track it in a spreadsheet, or be known as a bit of a miser, so be it.

What matters is you getting to where you want to be. And on time. We’ll help you get there.