Tuesday, June 26, 2012

Know Your Fiance's Financials

I was reading an article in a financial planning journal, titled “Couples Choose Love, Despite Financial Woes."   In the article, 32% of people surveyed by TD Ameritrade said they would call off the wedding if their partner declared bankruptcy, while 27% said they would hesitate or postpone the wedding, and 41% said they would do neither.  In other words, they would go ahead and get married.  Ladies, if you fell into the 41% who would do nothing, please read on.
One of the first steps you should take before you move in with or decide to marry someone is to discuss and be open and honest about your financial situation.
If your partner is evasive, or not willing to share financial information, this should be considered a warning signal.  I’ve said this before in my blog, but it is worth repeating, “many people are more willing to discuss their sex life than discuss their current financial situation."  Please note, just because someone is in what you perceive as a high paying position, or earns a big salary, does NOT mean they are a good stewards of money.  You have to delve in deeper to understand your partner’s money personality.
In our court system, there is a process called voir dire, which means “to speak the truth."  Schedule a time to have an open discussion about both your current situations.  It is imperative you share any financial baggage you have and uncover any financial issues your partner may have.  This will allow you to have a full understanding of what you are getting into from a financial perspective.  Why, you may ask?  Once married, your spouse’s credit rating can have a negative impact on your credit rating.  You may not be able to quality for a home loan, a car loan, or a new credit card.  A person with a bad driving record can cause your insurance to be cancelled.  These are just a few of the consequences of being involved with a partner who does not manage their finances properly.   
How do I know this?  From personal experience.  When I was divorced 23 years ago, my husband had charged our credit cards to the max and was not paying the bills on time.  Once we were separated and ultimately divorced they became my responsibility, but the damage was already done!  I was embarrassed when I could not qualify for a car loan and when I could not refinance a 12% mortgage because of my tarnished credit history.
I managed to pay everything off, but not without irrevocable damage (temporary, but 7 years is a long time!).  This often happens post-marriage, as it did for me.  You can avoid further problems with your fiancĂ© or partner in advance by open honest discussions.  This is the only way to make an informed decision if your partner’s money history is less than squeaky clean.
It is better to know and work through this on the front end then to regret it and suffer from the consequences.  This is serious business and it is your financial future.  Don’t take it lightly!
Check back for next week to read about the red flags to be aware of.

Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.
Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.

Tuesday, June 12, 2012

No Investment is Risk Free

I’m often asked for the secret formula to successful investing. I think Peter Lynch said it best when posted the question: “How do I make money in the stock market?”  His answer was, “The key to making money in stocks is not to get scared out of them.”  In addition to not being scared out of the market, you can be rewarded for buying more shares when other investors are selling. Another key to investing is understanding all the different types of investment risks.  Even guaranteed investments like CDs that are FDIC insured carry risk.  CDs are subject to inflation risk.  If you earn 1%, inflation is 2% and you are in the 30% tax bracket.  Your CDs have a negative 1.3% rate of return.  That’s what we call in the investment business “going broke safely.”  The moral of this story is that if you are looking for an investment without any risk, stop looking.  You won’t find one.
All investments have risks – just different kinds and degrees.  So it’s important to know what the specific risks are and how they can affect your portfolio.**
Market Risk: Stock market ups and downs are unpredictable.  So market risk – the possibility that investments will lose value because of a decline in the securities markets – may be the risk you about first.  Choosing an appropriate investment strategy and sticking with it may help your portfolio survive a volatile market.
Interest Rate Risk: You may think you can avoid the uncertainty of the stock market by investing in bonds.  But bond investments have their own risks.  Changes in interest rates affect bond prices.  When rates rise, prices of existing bonds fall because older bonds are paying less interest than newly issued bonds.  Holding a variety of bonds having different maturity dates may reduce interest rate risk.
Default Risk: Bonds are subject to another type of risk – the risk that the bond issuer won’t have money to make principal and interest payments to bondholders.  Generally, investors who buy lower rated “junk” bonds are more at risk from default than investors who hold investment grade bonds.  Check an issuer’s credit rating with a bond-rating agency, such as Moody’s or Standard & Poor’s, to minimize default risk.
Inflation Risk: Over the years, the rising costs of goods and services can reduce the purchasing power of your savings.  If you invest the bulk of your money in fixed income investments, you may be at risk of not earning enough to reach your long-term goals.  Consider investing a portion of your money in investments, such as stocks, with the potential for earning higher returns to help reduce inflation risk.
Currency Risk: Adding international investments to your portfolio may provide diversification.* But be aware that currency exchange rates, foreign taxation issues, and differences in auditing and financial standards, among other things, can affect the value of foreign investments.
Play a role: You can’t prevent investment risk, but you can take steps to moderate it.  By diversifying your portfolio, you improve your chances that gains in one asset class may offset losses in another.  And, when you invest for the long term, you’ll have more time to recoup any losses.
*Diversification does not ensure a profit or protect against loss in a declining market.
**Content written by Newkirk, as distributed to Symmetry Partners, LLC.
Note: Due to industry regulations on communication, we are unable to allow for public comments on this blog. Please feel free to email me your questions and/or comments to kathy@fishandassociates.com. Thank you.
Securities and Investment Advisory Services offered through NFP Securities, Inc., Member FINRA/SIPC. NFP Securities, Inc. is not affiliated with Fish & Associates.