CANFIELD, Ohio – Earning money is one thing, but knowing how to save it, spend it or use it to generate more can be tougher skills to acquire.
According to a Pew Research Center study released in December, 72% of American upper income households believe they know at least a fair amount about personal finances, while 56% of those in middle income households and only 42% in lower incomes.
At a May 19 Business Journal roundtable at the Courtyard by Marriott, Associate Editor George Nelson moderated a panel of Mahoning Valley financial professionals about wealth building, investing and risk tolerance.
Participants for the event were Stephen Daprile, certified financial planner at Gem Young Financial Planners; Tim Petrey, certified public accountant and chartered global management accountant at HD Growth Partners; Linda Carey, senior investment executive at Farmers National Investments; Jonathan Lapine, CPA and CFP, as well as co-founder and CEO of Tolmiros Financial; Brian Hostettler, certified trust and financial adviser, certified wealth strategist and a senior vice president and senior relationship strategist at PNC Private Bank – Hawthorn; Sid Jones, certified plan fiduciary adviser, managing director and wealth management adviser at Jones Wealth Management, Merrill Lynch Wealth Management; and Stephen VanSuch, CFP and CPFA, managing director/investments, branch manager of VanSuch Wealth Management Group, Stifel Financial Corp.
Fluctuating Market
While the stock market has been fluctuating in the past few months, panelists emphasized the need for a balanced approach, finding your comfort level and having a trusted financial adviser who can help you avoid making emotional decisions.
VanSuch noted a lot of people were uncomfortable as they managed through the uncertainty, but at the same time, the office did not receive a lot of calls from clients.
“I was very proud of our clients, how resilient that they were,” VanSuch said. “I had very few people that were looking to bail so to speak. In fact, most of the clients that we were talking to were looking at it opportunistically… Investors today, I think, are pretty educated.”
Jones said during these politically charged times, investors also may be more positive or negative depending on who is leading the country and the changes they anticipate for the economy.
While deregulation touted by the Trump administration may benefit some, other industries can be harmed.
“Politics and profits should not go together,” Jones said, but he added CEOs navigating the significant changes that came with the change of administrations were the ones “migrating to Mar-a-Lago.”
“We need to remind our clients that we’re not playing the same game as the hedge funds,” Jones said. “We’re investing for the long term. We’re making adjustments as they need to be adjusted… you don’t change based on whatever you’re hearing on the radio.”
Avoid Emotional Decisions
Hostettler noted investors can shut out the media when they have a good plan in place. As values go up and down, people can get emotional.
“There is an old adage, it’s the time in the market, not timing the market,” Hostettler said. “There’s always volatility.”
When spikes in volatility do happen, Carey cautions pulling out can be the worst thing, but some who have lost 15% of their account’s value, react emotionally, wanting to preserve what is left.
“I think emotional investing sometimes can be a large pitfall to a client… I think that’s the financial adviser’s job to kind of talk them off the ledge a little bit,” Carey said.
Making panicked or quick decisions can do more harm than good.
Petry agreed.
“I think the best wealth building strategy is to avoid making emotional decisions,” he said. “When you make the biggest, poorest financial decisions in your lives is when you make emotional decisions.”
Petrey said buying something to fill an emotional gap or exiting the market too early during times of volatility are poor decisions – as opposed to making good, solid, logical decisions, which can compound into wealth.
Hostettler said striking that balance between risk tolerance and goals is critical before investments even begin. He suggests listing out goals and objectives, as well as risk tolerance and tax situations, while building an investment portfolio.
Jones echoed that.
“If we are too aggressive, they’re not going to stay in in a period like what we just saw a month ago,” said Jones. “And if we’re too conservative, they’re going to leave too much on the table. So finding that level is really one of the most difficult things that we do.”
Diversification
VanSuch notes some of his more seasoned, elderly clients understand market volatility and truly are long-term investors who understand what their long-term goals are.
“Most importantly, I think goals-based financial planning is important – truly understand exactly what you’re investing for, why you’re investing and what the underlying investments are to accomplish those goals,” VanSuch said.
Carey agreed it is important for clients to have those conversations proactively when there is volatility, so investors understand their investments are diversified.
“I think that bodes a lot to the client’s confidence,” Carey said.
Having not just a strong plan, but also the discipline to stick with it can be even more important, Lapine said.
Risk tolerance and age is not always textbook, Lapine notes. There are 80-year-olds who are investing their “legacy asset.” It is not the money they need to live on now, but money they will leave for the next generation. They may look at risk differently than a retiree counting on that money for expenses.
Hostettler suggests when making a plan, investors should be ready to reevaluate it, at least when they reach milestones, but even as often as annually.
Jones also suggests a cash-flow analysis can be extremely helpful. Someone needs to know their needs are covered for the next two or three years.
According to Daprile, when someone does need cash, investments need to be set up in a way that they can pull the money out with limited penalties.
“There’s two components to what we do,” Deprile said. “What we do for people is we plan and we optimize.” Petrey noted some people may even over save, not planning properly for how much they will need to live comfortably when they retire.
“They just save, save, save,” Petrey said. “They make sacrifices to the quality of their life. They try to accumulate as much as humanly possible. But in reality, they over saved and they made sacrifices to the quality of their lives and time with their families over the period of their earning career and save too much. And then at the end of the day, when it comes time to retire, they have all this money, and they didn’t use their time properly over that period of time.”
The complete roundtable transcript will be available in the Mid-June edition.
Pictured at top: From left are Brian Hostettler, Stephen Daprile, Jonathan Lapine, Linda Carey, Tim Petrey, Stephen VanSuch and Sid Jones.