Fiduciary Rule in Limbo

Fiduciary Rule in Limbo

We feel so strongly about the importance of operating as a fiduciary, in fact, that when we organized our business, we did so as a fee-only registered investment advisor, a business type required by law to practice as a fiduciary. We are also avid followers of legal news about financial fiduciaries.Of late, there’s been plenty to follow.

What’s your number? Personalizing risk management for your portfolio.

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Imagine if determining the amount of risk that’s appropriate for your portfolio was as easy as picking “1” or “2” at the eye doctor.

Jim* heard about us through one of our clients and came in for a meeting to find out what we could do for him. His main concern when he came to see us was that the market was overheated. While he liked the positive returns he was seeing in his portfolio, he was concerned about his potential exposure to losses.

We sat down with Jim to do a risk analysis using a set of user-friendly questions that structured much like an eye doctor’s queries of “Which is better 1 or 2?”

Jim’s current advisor, who is based in Orange County, where Jim had just moved from, had been advising him to stay the course with his current market positions and enjoy the portfolio gains. At the end our conversation, however, we found that staying the course was the last thing he should do. His portfolio didn’t remotely match his Risk Number. 

Risk number, you ask?

We assign our clients a Risk Number via Riskalyze, a risk-alignment platform based on Nobel-prize winning economic work. The creators of Riskalyze discovered people have a much easier time assessing the investment risk they’re willing to take if they imagine doing it over a shorter time span. Based on this discovery, they developed technology to mathematically pinpoint a client’s Risk Number.

Using Riskalyze, we assigned Jim a Risk Number of 33, meaning that within a six-month time frame, he could tolerate a portfolio that had an upside of 9 percent and a downside of no more than 5 percent.

Next we looked at Jim’s portfolio. His investments, it turned out, had a Risk Number of 85, which was far above his actual risk tolerance. What this meant was that, while this portfolio would outperform the S&P 500, a 2008-level market correction would kill of half of his portfolio value, ten times more loss than he could reasonably tolerate.

With this data in hand, we suggested we optimize Jim’s portfolio to align to his risk tolerance. For Jim, having a local advisor who could hear his concerns and manage his portfolio accordingly, sounded like an excellent plan.

After Jim became our client, we ensured he had a tax-friendly portfolio tailored to his Risk Number. We also established loss guardrails that trigger a meeting to assess whether selling any of his positions is in order. Every quarter, we meet with Jim, and, because both markets and clients’ lives can change quickly, we send Jim a monthly email inviting him to check-in with us if he’d like. This allows us to quickly understand how Jim is feeling about the markets and address his concerns. Jim really likes this communication because it gives him the opportunity to know exactly how well his portfolio is working on his behalf. In short, it gives him the confidence to participate in the upside of the market without being afraid of the downside.

What’s your Risk Number? Click here to find out!

If you want a more in-depth analysis of how well you and your portfolio align, feel free to schedule some time with me to find out. You can reach Brandon at 928-460-0972 or brandon.montoya@montoyawealth.com.

* Name and details have been changed to protect client confidentiality.

Happy independent (advisor) day! 

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It's been one amazing year since we launched Montoya Wealth. When we decided to go independent, we couldn't have imagined how satisfying it would be to operate as an independent investment advisor after years spent advising in bank channels. Our fee-only model makes it clear where our priorities rest (with our clients) and I especially love having the flexibility to construct and implement tailor-made portfolios and serve each of our clients' specific needs through holistic financial planning.

It's been a great first year as an independent advisor and I am looking forward to many more to come. I want to say thank you to all our clients, partners, friends and cheerleaders who've made this amazing dream a reality. I am lucky I get to do a job that I love, for clients whom I care deeply about. It truly is a good life.

- Brandon Montoya

This could be you: 3 things that nearly all hometown millionaires share in common

When the father of a friend was in college, he lived in a bunker on campus for part of the time and shivered through one winter for lack of a coat. He was determined, though, and despite his lack of money, he made it through Eastern New Mexico University and eventually got a Master’s degree in geology from the University of New Mexico.
Geologists are not known for their lavish earnings. Even still, he lived frugally and saved and invested his money, so when it came time to retire, he has done so quite comfortably. You wouldn’t know it to look at him; he drives a 1983 Blazer to the greasy spoons where he eats breakfast several times per week and shops the sales at our local grocery stores like some sort of coupon ninja.
This friend’s father is, in short, a hometown millionaire.
The habits and values of wealthy Americans like him are fairly ordinary: They call for 1) hard work, 2) saving money toward financial goals, and 3) keeping a close eye on tax liabilities and portfolio risks. What’s extraordinary, though, is the consistency with which they apply these practices. Most of the multi-millionaires polled in the 2016 edition of U.S. Trust’s Insights on Wealth and Worth, a survey that shares characteristics of nearly 700 Americans with $3 million or more in investable assets, got off to an early start. On average, they began saving money at 14; held their first job at 15; and invested in equities by the time they were 25.
Most of them have invested conventionally. Eighty-three percent of those polled by U.S. Trust credited buy-and-hold investment strategies for part of their wealth. Eighty-nine percent reported that equities and debt instruments had generated most of their portfolio gains.
Fifty-five percent agreed with the statement that it is “more important to minimize the impact of taxes when making investment decisions than it is to pursue the highest possible returns regardless of the tax consequences.” In a similar vein, 60% said that lessening their risk exposure is important, even if they end up with less yield as a consequence.1
Worth noting: According the high-net worth surveyor Spectrum Group, 78% of millionaires turn to financial professionals for help managing their investments.
Just how many millionaires does America have? By the latest estimation of Spectrem Group, a surveyor that follows high-net-worth people, the country has more than ever before. In 2015, the U.S. had 10.4 million households with assets of $1 million or greater, aside from their homes. That represents a 3% increase from 2014. Impressively, 1.2 million of those households were worth between $5 million and $25 million.2
According U.S. Trust, 77 percent of the survey respondents reported growing up in middle class or working class households. When asked, the multi-millionaires said the three values that were most emphasized to them by their parents were educational achievement, financial discipline, and the importance of working.
The Spectrem Group reports finds that millionaires and multi-millionaires come from all kinds of career fields. The most commonly cited occupations? Manager (16%), professional (15%), and educator (13%).3 
Is education the first step toward wealth? Ninety percent of those polled in a recent BMO Private Bank millionaire survey said that they had earned college degrees. (The National Center for Education Statistics notes that in 2015, only 36% of Americans aged 25-29 were college graduates.)4
Interestingly, a lasting marriage may also help. Studies from Ohio State University and the National Bureau of Economic Research (NBER) both conclude that married people end up economically better off by the time they retire than singles who have never married. In fact, NBER finds that, on average, married people will have ten times the assets of single people by the start of retirement. Divorce, on the other hand, often wrecks finances. The OSU study found that the average divorced person loses 77% of the wealth he or she had while married.

Citations.
1 - forbes.com/sites/maggiemcgrath/2016/05/23/the-6-most-important-wealth-building-lessons-from-multi-millionaires/ [5/23/16]
2 - cnbc.com/2016/03/07/record-number-of-millionaires-living-in-the-us.html [3/7/16]
3 - cnbc.com/2016/05/05/are-you-a-millionaire-in-the-making.html [5/5/16]
4 - businessinsider.com/ap-liz-weston-secrets-of-next-door-millionaires-2016-8 [8/22/16]
 

Postcards from Paris

Brandon was featured on the front page of the Courier on June 24, 2017 talking about how he uses financial planning to help our clients achieve their retirement dreams. Here's the lead:

If your retirement dream is to sip a French roast coffee and savor a baguette from a sidewalk shop on the Champ Elysees peering at the Eiffel Tower, Brandon Montoya would welcome a postcard.

The independent financial planner and owner of Montoya Wealth Management in Prescott is a believer that retirement offers limitless possibilities for even the not-so-wealthy — be a European vacation or buying a getaway cottage to entertain grandchildren. All it takes is blending one’s long-term goals with proper money management, he said. 

Read the rest of the article here.

We're really proud to be recognized for the work we do helping our clients live well and grateful to the reporter, Nancy Hutson, for doing such a great job on the story. Thanks Nancy!

 

Podcast: Listening to our clients

Brandon recently had the opportunity to sit down to a discussion with Cadu Medina, of Smart (Small) Business Coaching. Over the course of half an hour, they talked about Brandon's client approach, our firm's approach to continuous improvement, and the importance of community in building a small business here in Prescott.  Give it a listen below.

Life after work: Designing a retirement lifestyle that works for you

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When Terry Lamb (pictured) and her husband retired to Prescott 12 years ago, the transition was harder than she expected. After spending a decade and a half working at an electrical company, surrounded by a close-knit staff, she was starting over. “I found myself in Prescott knowing no one,” she said.
She liked to quilt, though, and so she decided to go looking for other quilters. In short order, she found herself a part-time job at a quilting store and was thriving in her new community.
Terry’s experience is far from unique. The transition from career to retirement can offer a welcome opportunity for retirees to follow their bliss. But it can also leave people adrift without their routines, social networks, and workplace identities. Here are several questions you can ask yourself to navigate the pitfalls and opportunities of retirement and create an ideal-for-you post-career life. 

What things do you plan to do to create your identity and meaning in retirement?
For many new retirees, a meaningful retirement will center on the things they already enjoy – traveling, golf, gardening, grandkids, and meaningful engagement with the community. Creating simple routines like walking the dog, or having coffee with your morning paper, can be immensely satisfying, as can trying out new pursuits. Prescott resident Ann Sult, for example, became an accomplished painter only after retiring. “It was an ability I had no idea I had, something I never knew was there,” she said.
Whatever you decide to do, it’s important to remember is that a successful post-work life that captures your dreams isn’t one size fits all. Find what works for you, even if that means experimenting some. 

How do you want to spend your money and time in retirement?
Depending on what your plans are, you may need to do some budgeting: Big trips, boats and trailers can cost a lot, and so can gifts for grandkids, so make sure you talk to your financial planner about the best way to fund them so they don't derail your retirement. Time and energy are considerations, too. Volunteer work can be immensely rewarding, but as you're adjusting to a new set of routines, it can be helpful to start with small commitments to avoid feeling overwhelmed. 

Are you planning to retire gradually or all at once? 
George Ryberg, a Prescott-based consulting geologist (who happens to also be my father), eased into his retirement from his career so gradually that he is still accepting field jobs at age 78. Ann Sult, likewise, continues to teach classes part-time. Their approach has several benefits. It allows you to maintain your work identity and a bit of structure while opening up more free time.
“It’s just enough to keep me feeling like I’m doing something worthwhile,” Ann told me.
Easing into retirement can also give you more time to build the routines of a post-work life without the blank slate of endless free time.
Even if you do retire all at once, though, you can still begin to explore post-work activities in order to have a structure – and identity -- waiting for you when you get your gold watch. For example, you can add a volunteer position while you’re still working or take a community college class for painting or writing. One Prescott resident, Gary Cassidy, went as far as to get his MFA well before his retirement from the Army as a colonel.

Who makes up your community? 
When you leave the workplace, you will inevitably lose part of your social circle. It may be worth looking into enjoyable activities to help replace lost connections. Increasing your engagement in church, joining a book or service club, or signing up for social dancing classes are a few of the many options you can consider. Here in Prescott, we have some unusual opportunities, such as the Over The Hill Gang, a group that gets together to build and maintain local hiking trails and the Prescott Tea Society, whose members revel in the pleasures of the high tea.

How much time will you spend with your significant other? What will that time look like? 
It may be helpful to have a discussion with your significant other about how you'll spend the extra time you have together (assuming you’re both retired). Some couples plan to spend their retirement working closely together, while others are interested in maintaining their individual pursuits. Either way, it's important to find your way to a shared vision of how you'll spend retirement, both together and apart. 

Do you want to get another job when you retire?
A part time job in retirement can be a great way to supplement your retirement income, and it can also be a meaningful way to show up in the community.  After the quilting store shuttered, Terry Lamb didn’t work for a while. But she felt unfulfilled. “I found out I’m not a retiree-type of person,” says Terry. “I need to work, but I work for love.”

When she did go back to work, Terry went an entirely new direction with a position at Jay’s Bird Barn. Learning new systems, not to mention the ins and outs of birding, felt intimidating at first, but she’s glad she did it, both because of the connections she’s making in her new position, and because she likes the challenge. “I don’t care how old you are,” she said. “There’s always room to learn.”

Additional Resources
http://www.everydayhealth.com/news/how-live-purposeful-life-after-retirement/ 
https://hbr.org/2013/02/a-new-vision-for-retirement-pr 
http://www.nextavenue.org/can-find-meaningful-work-retirement/