It’s nearly impossible to ignore the statistics on love and money. An AICPA study shows that money is the most common reason married couples fight, with couples averaging three arguments per month about financial issues. Furthermore, arguments about money are the most common predictors of a future divorce.
What makes money and love so difficult to peacefully coexist? Let’s look at three common money issues couples face.
1. DIFFERING SPENDING PERSONALITIES
Even among a happily married couple, differing financial philosophies can clash and cause tension. It’s natural that some people are spenders and others are savers, but it’s important for a couple to be on the same page regarding their finances. Establish and agree upon a few basic guidelines and structure for how you will spend and save money. For example, how much can be spent per month on non-essentials?
2. DISPROPORTIONATE DEBT BETWEEN SPOUSES
When a couple marries, there’s a chance one spouse has more debt than the other, whether it’s school loans or credit card debt. Even if you both consider your assets and debts to be shared and split 50/50, arguments tend to ignite when there’s a disproportion of debt between a couple. To reduce stress and potential disputes, work together to find ways to tackle your debt before making other financial moves, such as investing or buying a first or second home.
3. A LACK OF UNIFIED FINANCIAL MANAGEMENT
In many relationships, one spouse often takes on the role of their family’s CFO, paying bills, monitoring expenses, and making financial decisions. But as a result, the other spouse is left out and isn’t aware of what financial goals they’re pursuing or what their finances look like. While some people prefer to manage their family’s money, it’s still important for both partners to work as a team and make financial decisions together.
Although the topic of money can occasionally cause concern among couples, money doesn’t have to become a source of strife in a relationship. Invest the time to address spending habits and savings goals, and communicate effectively.
As an independent financial advisor, I enjoy working closely with couples and helping them identify and pursue their lifelong objectives. If you have questions about your financial situation or have yet to get started with financial planning, I’d be happy to help. To learn more, call 800-840-5946 or visit www.archerim.com.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
Imagine laying out all of your bills, account statements, insurance policies, and loans and trying to make sense of them all. Pretty overwhelming, isn’t it? That’s why organization is so foundational. You cannot succeed in your financial life without being organized. Here are 5 steps to get your finances in order.
1. SIMPLIFY
Look at the big picture of your finances. Are they complicated? Do you have too many credit cards, accounts that go unused, or 401(k)s from past employers? Make a list of all your accounts and prune them back. The fewer you have to manage, the easier it is. Even better, keep all your financial dealings in one place in our online client portal where you can access your investment accounts, see the current value of each of your assets, and review your debts.
2. SAVE A TREE
Clutter is one of the enemies of organization. Unless you’ve created a streamlined system, paper documents often pile up and can be difficult to track down when you need them. Instead, go paperless by enrolling in electronic delivery wherever possible. Then, all you’ll need to stay on top of things is a list of your usernames and passwords.
3. ORGANIZE YOUR PASSWORDS
Speaking of, find a method of keeping all of your login information in one place.
Find a password manager that will keep your information safe and help you generate many different and complex passwords. Also, regularly update your passwords so your account details are protected from hackers and identity theft.
4. KNOW WHERE TO LOOK
Despite how digital our lives are becoming, there are still times we need physical documents. Find a system that works for you, whether it’s a binder, a locked filing cabinet, or an in-home, fireproof safe. Gather everything together neatly and store it in one place that is easy for you to access. Buying a crosscut shredder to dispose of older documents is also a must.
5. CREATE A MASTER LIST
Develop a master directory that lays out all your financial information to help you manage your affairs and serve as a guide to your family members if they ever need to assist with your finances. Be sure to include account numbers and logins, and keep this document password-protected or under lock and key.
It’s impossible to make wise financial decisions if you don’t know what you have to work with. If you’re ready to organize your finances or aren’t sure how strong your foundation is, we encourage you to schedule a phone call with us today.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
I’m Richard Archer, founder and President of Archer Investment Management. While it’s tempting to tell you all about me, the truth is that I’m all about you—your financial goals, dreams, concerns and success. That’s what I’ve built my company on, and that’s why I’m so proud of it.
Can money buy happiness? You may think the answer is no, but maybe it’s not about the balance in your accounts and more about how you choose to spend your money. In their book “Happy Money: The Science of Happier Spending“, Elizabeth Dunn and Michael Norton delve into the research linking money and happiness. Here are five ways they found money can “buy” happiness:
1. FOCUS ON “DOING,” NOT “HAVING”
The joy of having “things” fades quickly, whereas experiences have a lasting effect. If you’re going to spend money, choosing to go on a vacation or attend an event can lead to far more happiness than purchasing that new big-screen TV.
2. KEEP THINGS FRESH
If something is always available, it often loses its luster. If you buy a pastry every time you get coffee, it stops being a treat and becomes a dull routine. But if you only treat yourself once a week, you will have something to look forward to and will appreciate it more.
3. BUILD ANTICIPATION
Have you ever planned a trip months in advance, creating itineraries and researching restaurants? If so, you know that one of the best things about taking a vacation can be the waiting period, the build-up to the day you get on the plane or pack up the car. The anticipation of what’s to come intensifies the emotional experience.
4. BUY TIME
Many people sacrifice valuable time to save a bit of money. But time may be more valuable. Try paying for a housekeeper, having your groceries delivered, or splurging on a direct flight instead of a cheaper indirect one. One way to save time that I’m particularly fond of (warning, shameless plug ahead) is to invest in a financial advisor to simplify your financial life. In all seriousness, by streamlining your finances, you can free up time and mental energy so you can focus on what’s important to you.
5. GIVE FREELY
We often think that spending money on ourselves will bring happiness. But in reality, one of the best ways to create fulfillment is to spend our money on others. Have you ever bought the perfect gift for someone and experienced joy at how much they appreciated it? It’s a win-win.
Having more money doesn’t guarantee happiness, but being intentional with your money can bring you fulfillment. I’d love to help you simplify your finances so you can find even more happiness in life! Click here to schedule a phone call.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
You’ve probably had it drilled into you since you were young that owning a home means that you are on the road to success. For generations, buying a home was considered the cornerstone of the American dream, but is that still the case? Is buying really better than renting?
You may be surprised by this, but the Harvard Joint Center for Housing Studies tells us that the majority of renters are 40 or older and that there has been an increase in the number of renters in their 50s and 60s.
When it comes to retirement, here are some questions to ask yourself when making the decision to rent or own your home:
1. IS YOUR HOME PROVIDING A RETURN ON YOUR INVESTMENT?
A common cliché is that your home is an investment. But despite the benefits of homeownership versus renting, owning a home can be a considerable drain on your resources. It’s true that you can gain from owning a home. If you bought when the housing market was low, you may have amassed a large amount of equity. But that equity only serves you well if you are planning to sell. Unless you downsize or move to a cheaper area, anything else you buy will be a similar price; therefore, the equity you gain will just be going towards your new home.
But what if you feel like you are throwing away money on rent? While rent payments only go into the hands of a landlord and don’t increase your net worth, there are additional hidden costs that come along with homeownership that you might be forgetting. If you own your home, you need to budget for property taxes, maintenance, and insurance. Not to mention the time and effort required in keeping up a home.
If you are in it to invest, let’s consider an example. Say your mortgage interest rate is 5%. If you estimate that, based on your risk tolerance and time horizon, you can expect an investment return of 4%, it would make more sense to pay down your mortgage. Otherwise, you’re potentially throwing away 1%. However, if you are an aggressive investor and believe you could earn 8% on your investment, it would make more sense to invest. Or, think of it this way: if your ownership costs total $2,000 a month and you could rent your ideal property for $1,800 a month, you have $200 to invest. Use a calculator to compare the potential investment growth with how much equity you could gain.
2. IS THE TAX BENEFIT WORTH IT?
If you enjoy benefitting from the tax deduction that home ownership offers, renting won’t look enticing. But remember that in order to receive the deduction, you must itemize your taxes. Depending on the value of your home, the standard deduction might be more than the interest rate deduction. Also, as you pay off your mortgage, the amount you dedicate to interest decreases each year, meaning you will receive a small deduction. And if you have already paid off your home, you can only deduct your property taxes.
3. WHAT CAN YOU HANDLE?
As you age, you might realize that you can’t handle the upkeep of your home. Even if you previously enjoyed puttering around with tools and landscaping the yard, your health might prevent you from continuing these activities. Take a look at your lifestyle and make an informed decision. If you would gain peace of mind with someone else maintaining your residence, you might want to rent.
You may be drawn to the amenities that come with renting and want to be part of a community with others who are in the same phase of life you are. Even if you enjoyed living in the suburbs or country as an empty-nester, you may be drawn to a more urban setting with more transportation options. Retirement is a completely new season of life, so you need to evaluate how you want it to look instead of relying on old ways of thinking.
4. ARE YOU PLANNING TO LEAVE YOUR HOME TO YOUR HEIRS?
If part of your estate plan is to have your children inherit your home, it makes the most sense to stay put as a homeowner. According to a Trulia study, it’s only worth it to be a homeowner if you are going this route. Otherwise, it’s always cheaper to rent than own in retirement. One of the most important benefits of owning a home is building equity. If your children sell the home when you pass, the equity becomes their inheritance. But again, you need to weigh the pros and cons of the potential growth of that equity. If you sell now when the market is up and rent for considerably less, you could invest the equity you gain from the sale and use that money as an inheritance.
Do need more convincing that homeownership may not be the best financial decision for your golden years? Take the time to watch this video to get a thorough picture of why homeownership might not be your wisest choice.
Whether you rent or own in retirement is a personal decision you must make based on your unique set of circumstances and values. Do you own your home outright? How much equity do you currently have? Does your home require minimal upkeep? How are the advantages and disadvantages balancing out for you? Is it time to reevaluate your situation? I would be happy to help you think through your options and make a decision that will benefit you for years to come. Click here to schedule a phone call.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
The Five Star Wealth Manager Award honors professionals in the financial services industry who are committed to excellence, aiding consumers as they decide who can best help them meet their financial goals. Candidates are screened for client complaints, retention rates, status as a Registered Investment Adviser (RIA), years as a RIA, and credentials such as Certified Financial Planner (CFA) and Chartered Financial Planner (CFP).
Archer is thankful to be recognized for his extensive post-graduate work, outstanding client relationships, and the decision to build his fee-only RIA business in the way he knew would most benefit his customers.
“After college, I studied for another seven years to obtain my CFA & CFP designations and my McCombs MBA. It was a lot of work, but I felt I needed to not only be able to deeply understand the investment universe and portfolio construction, but also be able to address wide-ranging financial planning issues such as insurance, estate planning, and taxes. Additionally, I wanted to be able to understand my clients who own their own businesses and to help them be even more successful. At the end of the day, the most important thing to me is to be useful and valuable to my clients. The more I know, the better I can help them achieve their dreams.”
The award is a great starting point for clients when looking for financial advice, but Archer suggests that consumers screen to make sure fees charged are commensurate with the services provided and that a potential adviser is a good fit.
“No matter the awards or designations a financial advisor has received, a client should look for someone who truly listens to them and understands their needs.”
AWARD DETAILS
To receive the Five Star Wealth Manager award, a wealth manager must satisfy 10 eligibility and evaluation criteria.
Credentialed as an investment adviser representative or a registered investment adviser.
Actively employed as a registered investment adviser representative or as a principal of a registered investment adviser firm for a minimum of five years.
Favorable regulatory and complaint history review.
Fulfilled their firm review based on internal firm standards.
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
Have you ever ridden a touring bicycle down a mountain? I wouldn’t recommend it. Touring bikes are designed for paved roads, so shock absorbers are eliminated to make them lighter and pedal more efficiently.
If you took a touring bike down a mountain, you would end up in a lot of pain. For something like that, you need a mountain bike. They are designed with shock absorbers to cushion the impact of the rocks, logs, ditches and other obstacles you will inevitably confront on the trails.
CAUSES OF A BUMPY INVESTMENT RIDE
Sometimes investors feel like they are riding a touring bike down a rough mountain. Every bump in the markets makes them want to cry out in pain, and they wonder if they’ll ever make it to their final destination. Why is this?
One thing that can make for a really jarring ride is having an undiversified portfolio. If your investments are highly concentrated, every little dip in the markets will be magnified and leave you reeling.
Another thing that will make for a really choppy ride is constantly changing asset allocations based on short-term rough patches in the markets. If you let every market pothole throw you off your bike, you’ll never get anywhere.
HOW TO SMOOTH YOUR INVESTMENT RIDE
So, how can you smooth out your ride? What shock absorbers can you add to your bike to get you down the investment mountain in one piece and enjoy the ride?
Diversification. Spreading your portfolio across different securities, sectors, and countries will even things out and make for a much more comfortable, safe, and enjoyable ride. You will need to identify the right mix of investments, like stocks, bonds, or real estate, that align with your risk tolerance. This will keep you on track toward your goals no matter the obstacles that crop up.
You may not end up with the top performing portfolio, but you definitely won’t have the worst either. This strategy isn’t about being the best, it’s about creating a smooth enough ride for you to hang on until you get to the bottom of the hill. Without these shock absorbers, you are likely to quit halfway down.
IT’S IMPOSSIBLE TO SWERVE AROUND EVERY BUMP
Just as you would try to swerve around everything possible if you were riding a touring bike down a mountain, people with concentrated portfolios resort to market timing and constant trading in an attempt to anticipate the top-performing countries, asset classes, and securities.
This is nearly impossible. Here’s an example of just how unpredictable the ride can be. Among developed markets, Denmark was number one in US dollar terms in 2015 with a return of more than 23%. But if you had bet big on that country the following year, you would have ended up in a ditch. In 2016, Denmark slid to the bottom of the table with a loss of nearly 16%.
Even the US stock market, which is the world’s biggest, can throw you for a loop. It has been a strong performer in recent years, holding the number three position among developed markets in 2011 and 2013, first in 2014, and sixth in 2016. But a decade ago, in 2004 and 2006, it was the second worst-performing developed market in the world.
Trying to predict which part of a market will do best over a given period is also challenging. For example, while there is a plethora of evidence to support why we should expect positive premiums from small cap, low relative price, and high profitability stocks, these premiums are not laid out evenly or predictably across the map. US small cap stocks were among the top performers in 2016 with a return of more than 21%. A year before, their results looked relatively disappointing with a loss of more than 4%. International small cap stocks had their turn in the sun in 2015, topping the performance tables with a return of just below 6%. But the year before that, they were the second worst with a loss of 5%.
If you’ve ever ridden down a mountain, you know to expect the unexpected. There may be a rut or rock pile hiding just around the next turn. It’s important to have a bike with proper shock absorbers to handle whatever may come. Diversification isn’t some kind of magic that will make everything a perfectly smooth ride. But, it does smooth things out so that no individual investment will throw you off your bike. There will still be bumps along the way, but nothing that will keep you from reaching your goals.
DOES YOUR INVESTMENT BIKE NEED A TUNE UP?
Take a look at your portfolio. Does your investment bike need some shock absorbers? You’ve come to the right place because I’m an investment mechanic! With sufficient diversification, the jarring effects of performance extremes level out. Then, you will be able to hang on and enjoy the ride all the way to your investment destination. Click here to schedule a phone call, and we can get your portfolio ready for whatever lies around the next turn in the trail.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
Twingo. Clio. Polo. Ibiza. Do you know what these are? Maybe Caribbean islands? Possibly the names of Angelina Jolie’s children? Surprisingly, these are the most popular cars on the Spanish island of Tenerife, 90 miles north of Morocco. I only know this because I tallied them as they passed me on my four-hour bicycle ascent up the famous mountain El Teide.
I consider myself a “car guy,” yet I had never heard of these cars. I find that the more I travel, the more my eyes are opened to the fact that there are people living very different lives from mine who have valuable perspectives. This simple car analogy reminds me that I need to travel more and expand my viewpoints and knowledge beyond my everyday life in Austin, Texas.
CHALLENGING OUR PRECONCEIVED IDEAS
It’s easy to think I’ve got everything figured out. I know where I want to live, what I like to eat, and the best places to ride. But that’s not the reality. Those things may be comfortable and familiar, but I keep finding new favorite things in new places. For example, Gran Canaria has the most difficult climbing in the world (not Boulder, CO), and I might like speaking Spanish more than English because it flows better!
This past election brought up plenty of talk about our personal “bubbles,” but many of us don’t take the time and effort to recognize our own bubbles that we base everything else on. It takes habit and discipline to look at things from a different perspective and learn other ways to do things.
For example, at one of my nightly team dinners, I sat near a Brazilian couple and listened attentively as they took me for a personal tour of South America. As I heard their thoughts, my limited life bubble seemed in stark contrast to their worldliness, and my preconceived notions were challenged. In their minds, Brazil is the “America” of South America, big and diverse with the best beaches in the northern part of the country (please don’t let this secret out!). Argentina is like France, where residents feel culturally elite and more refined than their South American neighbors; and Chile is most like Canada, friendly and inviting. Now that I know more about South America from their point of view, it feels less daunting for me to travel there, and Chile may show up on a future itinerary of mine.
It was fascinating to hear them thoroughly discuss a topic I had never taken the time to consider. I quickly learned that my worldview is greatly limited by my lack of experience. Just like most of us, I tend to favor the familiar and fear the foreign because I don’t know any differently. America is the best at everything after all, right? This concept goes beyond travel, it relates to your portfolio as well.
THINK OUTSIDE OF THE INVESTMENT BOX
When I was a young investor, my portfolio leaned heavily towards familiar U.S.-based investments. In my mind, they were certainly less risky than unfamiliar foreign holdings. But I soon learned that there is a world of opportunity in equities. Did you know that the weight of the U.S. stock market relative to the global market is approximately 54%? As shown below, nearly half of the world’s investment opportunities are outside of the U.S., with non-U.S. stocks representing more than 10,000 companies in over 40 countries.
Although U.S. stocks have been in favor the last few years, this has not always been the case. January 2000 – December 2009 is known as the “Lost Decade” because U.S.-only investors lost money cumulatively over those 10 years. Here’s a look at how the market played out during that period:
Exhibit 2: Global Index Returns January 2000–December 2009
Diversification is Key
Over the last 20 calendar years, the U.S. has been the best performing country twice, and the worst performing country once. Global diversification implies that an investor’s portfolio is unlikely to be the best or worst performing, instead providing the means to achieve a more consistent outcome. It helps reduce and manage catastrophic losses that can be associated with investing in just a small number of stocks or a single country.
It’s important for us to expand ourselves with new experiences and knowledge as well as seek diversification in our portfolios. Not only does it improve our quality of life, but it also makes us more understanding of others and lessens extremes. If you are curious about global markets or worried that your portfolio isn’t globally diversified enough, I’d love to talk to you. Click here to schedule a phone call. To close, te veré en Santiago (I’ll see you in Santiago)!
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
You frequently hear the word “risk” thrown around when it comes to your portfolio, but have you truly grappled with the thought that you could lose everything? It’s easy to say that you are willing to take risks when things are good, when you’re cycling on a smooth, flat, paved road. On my recent cycling trip, I came face-to-face with risk and the fear that resulted.
THE REALITY OF RISK
Every cyclist is familiar with the moments on a long climb when they have to focus solely on the few feet of pavement in front of them, those times when they could lose their nerve if they dare to look over the cliff’s edge beside them. My most recent experience with this kind of test was when I was three hours into arguably the toughest climb in Europe: The Valley of the Tears. My fellow cyclists and I had already climbed about 40 kilometers when the very narrow, one-lane road pitched up menacingly into an unending series of 20%+ inclines separated by blind switchbacks.
I swallowed hard to push down the fear I had building up in my throat, summoned all of the remaining strength I had in my screaming quads, and attacked. In order to avoid tipping over backward in a slow motion, uncontrollable wheelie back down the unforgiving incline, I stretched out as far forward as I could, laying my stomach on my handlebars and forcing my front wheel to stay in contact with the ground. The further I rose, the worse the road surface became, challenging me even further. I dodged deep potholes every few feet, and loose gravel caused my back wheel to slip, stealing my precious pedal power. Then, I rose above the treetops along the left side of the road that had thankfully blocked my view of the 4,000-foot drop to my left.
The road narrowed further, and I was unwillingly forced out toward the precipice by a solid mountain rock wall that curved low and in toward my head. I was left with precious little room to ride as I fought up the mangled road surface. At that very instant, I realized I had, unwittingly, pushed myself beyond my personal risk limit. Fear overwhelmed me and my shoulders, legs, and hands started shaking uncontrollably. I knew I had to get off this road and this mountain now.
ANTICIPATE YOUR LIMIT FOR RISK
I’ve never left a ride unfinished, and in my mind, quitting was not a choice. Climbers are the toughest cyclists, willing to endure hours of grueling pain and fatigue while never expecting to reach their limits. Risk is an accepted aspect of the sport, and you prepare every way you can to minimize it. You build strength over long hours on the bike trainer, quietly sneak out before sunrise on weekends to get your training rides in before the traffic begins, and avoid desserts for months prior to big climbs, trying to avoid carrying even one extra ounce up the hills.
I thought I was prepared for the Valley of the Tears. I had conquered the worst climbs Austin has to offer, finished a mountain stage of the Tour de France, had excellent equipment, was hydrated, and had held back some energy in reserve that day. I knew that this hill was going to do its best to defeat me and throw every challenge at me that it could. If you ask for help from our support van among this group of elite cyclists, you had better have a bone sticking through your skin. Not only is it just not done, but it’s mortifying for an athlete of this level to throw in the towel. On these rides, our goal is to see if we’re the among the best climbers in the world. But on that hill, my fear of death fought and overcame my shame of arriving at the top of the climb inside the van, my bicycle sticking out of the top rack like a big blue last place trophy for all to silently ridicule.
RISK AND YOUR PORTFOLIO
I unclipped from my pedals midway through that climb. I had no choice. I had dangerously lost my ability to focus only on the road ahead of me. I had failed to anticipate my limit for risk, and now I was in a jam: 4,000 feet in the thin air, squeezed on a rough, narrow path, unable to safely descend or ascend. As I reflect on my predicament, I cannot help but draw parallels to the risk that accompanies financial portfolios.
I spend hours every week working with my clients, trying to determine how much risk they are willing to take with their hard-earned money in exchange for potentially higher investment returns. It can be hard to figure out your risk tolerance when you haven’t seen your portfolio fall 35% or more like many investments did in 2008. It’s my job to guide you toward a portfolio you can hold fast to when the road gets rough above the treetops and real, permanent loss is staring you in the face. My only goal is to help you discover your risk limits before you’re overcome with fear and dangerously stranded like I was in the Valley of the Tears, when you are too terrified to hold on, and cannot afford to sell and lock in your losses at likely the worst possible time. I’d love to chat with you, talk through your goals, and help you reach your dreams while working within your personal risk level. Click here to schedule a phone call.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
For many companies, offering employee stock options is a way of rewarding their employees while also aligning their interests with those of the company. Once reserved only for executives, stock options are now being offered to many rank-and-file employees as well. In fact, the number of people holding stock options has increased about nine fold since the late 1980’s. (1)
Your employee stock options can be a great benefit — if you know what to do with them. Here are three ways to maximize the value of your employee stock options, so you can avoid paying excessive taxes or leaving money on the table:
1. UNDERSTAND THE TAX CONSEQUENCES
Albert Einstein once said that “the hardest thing in the world to understand is the income tax.” (2) Taxes can get complicated, even for someone like Einstein. However, not understanding how taxes work for your employee stock options could cost you a lot of money.
How Stock Options Are Taxed
There are two kinds of stock options, Incentive Stock Options (ISO) and Non-Qualified Stock Options (NSO). The main differences are who can receive them and their tax treatment. When NSOs are exercised, the difference between the grant price and the fair market value of the stock (called the “bargain element”) is taxed at ordinary income rates. Then, when the stocks are sold, the gains are taxed as either short or long-term capital gains, depending on how long they were held.
ISOs receive favorable tax treatment because they meet certain requirements in the Internal Revenue Code. Unlike NSOs, the exercise of an ISO is not a taxable event, though it could trigger the Alternative Minimum Tax. If the shares are immediately sold, the bargain element is taxed as regular income. Holding on to the shares is how you can get the tax break. Everything (the bargain element and the gains) is taxed at the long-term capital gains rate if you hold the shares for at least a year after exercise and do not sell them for at least two years after the grant date. (3)
Filing An 83(b) Election (4)
If your company stock is growing steadily, it might be a good idea to file an 83(b) election. An 83(b) election simply allows you to pay the income taxes due at the grant date instead of the exercise date.
For example, let’s say you are granted stock options at $25 and the price when you exercise them is $50. With an 83(b) election, you pay income taxes upfront on the $25 cost. Any growth from there is taxed as capital gains when the shares are sold. Without the election, you pay regular income taxes on the $50 price when you exercise the options. The election allows you to pay half as much at the regular income tax rate and push the gains made between granting and exercising into the lower capital gains tax rate.
Filing an 83(b) election can be beneficial if the value of your company stock is increasing steadily. However, if the prices drop or the company goes out of business, you will be worse off for having filed.
Smoothing Taxable Income
It’s important to coordinate your taxable events relating to employee stock options. Planning for income taxes generated from exercising options ahead of time can be extremely valuable to you. Smoothing taxable income over time to stay out of high marginal tax brackets can save thousands in taxes.
2. GET YOUR DATES ORGANIZED
If you’re like many executives, you have received a variety of restricted stock and stock options at different times and for different amounts. The restricted stock may have very different vesting dates than the stock options and the options may expire at surprising times as well. With so much going on, it’s easy to miss a deadline. A lot of people’s stock options expire because they plan to exercise them at the last minute only to get distracted or simply forget. Not exercising your valuable stock options is like throwing away money.
Being organized is crucial if you want to make the most of your employee stock benefits. There are strict deadlines if you want to take advantage of some of the tax savings listed above. Don’t leave money on the table. Staying on top of dates and amounts can save thousands in taxes and help avoid missing out on expired options.
3. DON’T FORGET TO DIVERSIFY
Employee stock options are a nice benefit, but you don’t want too much of your financial well being tied up in one company. I generally recommend holding no more than 10% of your portfolio in your company’s stocks and options. Why?
If the company performs poorly, it will depress the stock price and you may be laid off at the same time. There go your portfolio, your income, and your health insurance all at once. Unfortunately, this has happened to many people. Back in 1999 when Enron filed for bankruptcy, more than $1 billion in employee retirement savings simply evaporated. Many Lehman Brothers employees experienced the same thing as well. (5)
HOW CAN WE HELP?
At Archer Investment Management, we understand employee stock options. We have experience helping clients minimize related taxes, stay on top of dates and deadlines, and diversify their portfolios. When it comes to your employee stock options, there is a lot at stake if you don’t do things right. Don’t try to do it all alone. Book an appointment with us online here so we can sit down and discuss how you can get the most out of your stock options.
About Richard
Richard Archer is a financial advisor and the President of Archer Investment Management with more than eighteen years of industry experience. Largely working with successful individuals and couples, he specializes in providing comprehensive investment guidance and personalized care and attention to each client. Along with holding a Bachelor of Science in Economics and a MBA, he is a CERTIFIED FINANCIAL PLANNER™ certificant and a Chartered Financial Analyst®. He combines his advanced industry education and knowledge with his genuine care for people to provide clients with an exceptional experience. To learn more about Richard, connect with him on LinkedIn or visit www.archerim.com.
