If you’re trying to create a pleasant ending to an email, you’ll want to steer clear of the phrase, “Please advise.”
In theory, the phrase “please advise” is just a sincere request for advice or guidance. But it seems like it really only gets used when someone wants to be passive aggressive.
Here, I’ll prove it to you. You’ve never gotten an email that sounds like this: “Hi, we’re really excited about the cookout this weekend and wanted to know what kind of food we should bring. Please advise!”
No, the “please advise” emails usually sound more like this: “Hello, we haven’t received payment for invoice #34007 which is now 14 days past due. Please advise.”
In other words, “please advise” is usually a special code used to convey annoyance, frustration, or a sense of “you need to get your act together or you’ll be hearing from our attorney/collections agency/mafia hitman.” But as the person using the phrase, it feels so much nicer to just say “Please advise.”
In the financial world, you’ll also find some special codes to make things sound kinder and gentler. Here’s just a few examples:
“High-Yield Bonds.” This is a special code for “junk bonds.” Now, which investment would you prefer to have in your portfolio—high-yield bonds or junk bonds? There’s certainly a use for junk bonds, but you can see how you’d automatically have a different feeling about them if you only knew them as “high-yield bonds.”
“Tax-Free Income.” At some point, you’ve probably heard commercials on the radio talking about special accounts/investments/strategies to create tax-free income in retirement. It all sounds very intriguing. But in this case, “tax free income” I just a special code for life insurance. They’re trying to sell you a life insurance policy, have you over-fund it for a few years to build up a nice cash value, and then withdraw from the cash value later to create income for yourself. It’s not a scam—it’s a legitimate strategy that works. The only problem is that it’s usually not necessary and sometimes an inefficient way to create that tax-free income for yourself. More often than not, it’s just a way to sell life insurance.
“Market Correction.” It sounds so much less daunting to talk about a “market correction” instead of a “market crash.” But a correction is defined as a decline of 10% or more. That means you could get away with referring to a 25% loss a “correction.” So if you have $500,000 in the market and you experience a 25% decline, that means that you lost $125,000. But you can see how it doesn’t hurt quite as bad emotionally when your stock broker says, “Yes, we had a market correction this quarter.” It makes it sound like something was wrong and the market was just retreating to where it should have been in the first place.
So just understand that people in the financial world are no different than the people in any other industry that want you to buy their stuff. Be aware that special codes like these exist and make sure you fully understand what you’re getting into.
And I can’t help but notice that some of you reading this blog post haven’t yet reached out to us for help. Please advise.
Please Excuse My Dear Aunt Sally
If you paid attention in algebra class a few decades ago, you probably remember learning about Aunt Sally. Nobody knows much of anything about Aunt Sally, only that her nieces and nephews feel compelled to apologize a lot on her behalf.
The phrase you might remember hearing (or muttering to yourself as you solved equations) was, “Please excuse my dear Aunt Sally.”
This was a simple mnemonic device designed to help you remember the order of operations for solving an algebraic equation. Please Excuse My Dear Aunt Sally translates simply to Parentheses, Exponents, Multiply/Divide, Add/Subtract.
So when you initially see an equation like this, it might just look like a jumble of numbers and you have no idea where to begin…
x = 2 + (3 x 4)2 x 6
But if you’ll just follow the very important order of operations and take it one step at a time, each individual step is quite simple:
Original equation: x = 2 + (3 x 4)2 x 6
Parentheses: x = 2 + (12)2 x 6
Exponents: x = 2 + 144 x 6
Multiply/Divide: x = 2 + 864
Add/Subtract: x = 866
You can see how carrying out the operations in the wrong order would give you a very different answer. And without the order of operations to begin with, you’d be overwhelmed trying to figure out where to even start.
For most people, navigating your financial plan isn’t a lot different—either it all just looks like a jumble of numbers and you don’t know where to start, or you think you know what you’re doing, but you end up going in the wrong order. One particular area that seems to confuse people is the question of where to save for retirement—401k, Roth, IRA…something else? Well, here’s your order of operations:
1) Company Match: Contribute to your 401k/403b/457/TSP up to the amount necessary to max out your company’s match. Don’t leave any free money on the table. If they’ll match your contributions up to 5% of your salary, make sure you’re contributing 5% of your salary and getting everything out of them that they’ll give you.
2) Roth IRA: Assuming that you’re under the income threshold and are able to contribute to a Roth IRA, go ahead and max out a Roth for yourself (and your spouse if you’re married).
3) Back to the 401K: If you’re in a higher tax bracket and would benefit from having more taxes to defer this year (and you’ve already funded a Roth), now you can go back to the 401K and max out that account for the year. You won’t be getting a company match on these extra contributions, but you’re still contributing to a tax-advantaged retirement savings vehicle. If you’re in a lower tax bracket and you aren’t as interested in deferring taxes this year, skip this step and go to Step 4.
4) After-tax investments: If you’re maxing out a Roth IRA and your 401k and you still have money that you want to save for retirement, you can do it in any number of after-tax investments. It could be a brokerage account where you’re investing in the same types of funds that you have in your Roth and your 401K, just without the tax advantages. Or maybe you’d prefer to invest in something like rental property. Or maybe you’d rather use this money to get your mortgage paid off early.
It’s important to point out that, unlike the unflinchingly rigid laws of algebra that are always perfectly consistent in all cases, the order of operations in your financial situation might require some customization to fit your life. But if you’re navigating a jumble of numbers and trying to figure out where to start, stick with this plan of action and you’ll be on the right track.
And tell Aunt Sally that she’s excused.
Not Exactly Like Riding a Bike
Castaway Cay might be the greatest place on planet earth.
If you’re not familiar, Castaway Cay is a private island owned by Disney. The only way to visit the island is by hopping aboard a Disney cruise; all of their Caribbean itineraries stop for a day at Castaway. Somehow, and I don’t really understand how this works, it’s always between 74 and 82 degrees on the island, regardless of what time of year it is. A few dozen Disney employees live on the island, with nothing to do except keep it clean and prepare delicious food.
On our most recent trip to Castaway Cay (which was our fourth), we decided to take part of the day and do something a little different from our usual routine of hanging out on the beach and gluttonously partaking in the buffet. Most of island is remote, with nothing but a bike path, so we rented bikes for a family ride around the island.
Lilly had her own bike (with training wheels), Molly had a regular bike, and I had a bike with a seat on the back for Amos to hang out in. Sure, I was wearing flip flops and hadn’t actually ridden a bike in probably 20 years, but riding a bike is literally the essence of something that you can’t forget how to do. How many times have you heard, “It’s just like riding a bike?”
Well, I quickly discovered that riding a bike, for the first time in a couple of decades, while wearing flip flops, with an almost-three-year-old in the back who kept drifting off to sleep and falling over to one side and throwing off the weight equilibrium…is actually not just like riding a bike.
You would have never been able to tell if you were just watching from afar, but at no point during our hour-long ride did I ever feel comfortable. The child seat on the back really makes it a lot harder to balance and accentuates your steering adjustments so that each slight shift of the handlebars created a giant steering overcorrection that had me constantly swerving back and forth. And right when I’d have a stretch where things were going somewhat smoothly, Amos would fall asleep again, lean over to one side, and nearly send me careening into the ditch. I never actually fell over, but I felt nervous and unstable the whole time.
So as I unsteadily wobbled my way back and forth across the island, it occurred to me…this is what retiring is like for a lot of people.
You’ve seen other people retire and it looks like a lot of fun. And as you start thinking about your own retirement, it really seems like a great idea. But then you actually start doing some of the things on your checklist—applying for Social Security and Medicare, nailing down a retirement date, helping train your replacement, making pension decisions, trying to be confident that you have enough money saved to last the rest of your life—and suddenly you feel unsteady and nervous and worried that you might have an embarrassing crash at any minute.
I’ve been guilty of lacking empathy for this feeling over the years, for a couple of reasons. First, I’ve never actually retired myself, so the whole planning process is just an objective, mathematical exercise for me. Second, once you’ve helped enough people through this process, you realize that, sure, there are landmines that you need to be aware of, but when the numbers in the plan work, they work. To me, it’s like riding a bike. What’s there to be nervous about?
So from now on, I’ll be more cognizant of the fact that when I’m helping you make the move from earning a paycheck to using your investments to create a paycheck, while it might seem simple to me, you’re probably going to feel nervous and unsteady, no matter how many reassuring things I say to you.
Swing States, Safe Seats & Your Retirement
Anytime we have a major election in this country, there’s a lot of angst about polling data and whether or not the polls were accurate.
The polls are almost never wrong. It’s just that most people don’t understand how they work.
Anytime polls are conducted, there’s a set of assumptions that has to be made about what the electorate is going to look like. How male or how female will the electorate be? How black or how white? How religious or non-religious? And if any one particular demographic doesn’t show up to vote with the same intensity that the pollsters expected, it can skew the accuracy of what the polls are predicting.
This is why pollsters tell us the “margin of error.” Some people think that the margin of error is something that statisticians just make up to cover their butts. But it’s quite a bit more complex than that. It’s essentially their way of saying that they don’t know exactly who is going to show up to vote and who isn’t, so they’re going to give us a range of outcomes that could occur, depending on what the electorate actually ends up looking like.
So when you see that Bill Nelson is leading in Florida by two points in several consecutive polls, it might be tempting to think that the consensus is that he’s going to win. But pay attention the margin of error. If the margin of error is four, that essentially means that the range of outcomes could be anywhere from Rick Scott winning by two points all the way up to Nelson winning by six. (And as I write this post a week after the election, they’re still trying to sort out the votes in Florida).
But sometimes you have races that just don’t get any coverage at all. Even though they conduct polls in California, no media outlet feels the need to bother reporting on Dianne Feinstein’s lead, because everybody knows she’s going to win. Same story with John Barrasso in Wyoming, Roger Wicker in Mississippi, or Amy Klobuchar in Minnesota. Unless you live in those states, you might not have even realized that those folks were up for re-election.
That’s because it’s a “safe seat.” If pollsters see that Klobuchar is leading by 25 points and the margin of error is four, there’s not much to talk about. That means she could win by anywhere between 21 and 29 points, depending on who shows up to vote. But either way, she wins. For all intents and purposes, it’s statistically impossible for her to lose. (As it turned out, she won by 24 points).
This is the same kind of certainty that you should try to build into your retirement plan. Financially speaking, you don’t want to live in a swing state.
Think of stock market returns as being analogous to voter turnout. We don’t know who’s going to show up to the polls, just like we don’t know what the market is going to do from year to year. So the best we can do is predict a range of potential outcomes.
If you’re on the brink of retirement, we can assess your age, investments, life expectancy, and how much income you’ll need from your portfolio each year, and then see what the “polls” tell us. If the spectrum of potential outcomes ranges from a best case scenario where you have $325,000 left when you die to a worst case scenario of you running out of money at 79, then you live in a swing state and your seat can’t be considered even remotely safe.
On the other hand, if your range of outcomes falls somewhere between you dying with somewhere between $500,000 and $750,000, then your seat is safe and you don’t have to sit around sweating it out on your financial “election night.”
If you have a range of outcomes that isn’t satisfactory in the political realm, you don’t just give up. You invest more on TV ads, get more volunteers out in the community to knock on doors, and crank up the opposition research on your opponent.
If you don’t like your range of outcomes in the financial realm, there’s also plenty that you can do. You can work an extra year or two, decrease how much you take from your portfolio each year, downsize to a smaller house, or plan to work a part-time job for a while after you retire.
There’s always something you can do, the key is knowing where you stand.
What if, financially speaking, you’re running for Senate as a Democrat in Mississippi, but you think you’re in Vermont? Things probably aren’t as rosy for you as you think.
Or, on the other hand, what if you’re a Republican and you think that you’re in California, but in reality you’re actually in South Carolina? You’re probably in much better shape than you ever dreamed.
You just don’t know until you see what the pollsters are saying.