Ask Todd
Ask Todd Your Single Most Important Question About Investing, Personal Finance, Retirement Planning, Or Financial Freedom
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Just enter your question in the comments box below – it's that simple. I will then reply back with answers to your most popular questions. Even if your question has already been asked you should still add your input to the discussion because the additional feedback increases the question's popularity.
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"A prudent question is one half of wisdom." Sir Francis Bacon |
Why do I offer this service for free? The truth is we're really helping each other here. When you provide questions it helps me focus my writing on what interests you the most. You get relevant content and I get happy readers – we both win.
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Now, what is your single most important question about investing, personal finance, retirement planning, or financial freedom?
Thank you for your support,
Todd R. Tresidder – Founder, FinancialMentor.Com
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Comments on Ask Todd
I would like a response to the question of how can we start a consultation floor in the Salt Lake City area? We do the consultations and if they qualify we can set to one of us or to whomever you choose for the enrollment into a coaching program. There is a lot of talent here lookng for work that want to help people get into the type of coaching that really makes a difference. Dee
Dee, thanks for your question. I will be adding a page to the financial coaching section of this site in early 2009 titled "A Consumers Guide To Financial Coaching" or something similar. It will point out the differences between education, seminars, generic financial coaching, and my brand of financial coaching so that people can make a wise decision what type of service fits them best. There is nothing wrong with any of the different alternatives – it just depends on the client's needs and budget. For right now, I am choosing not to work with the mass- production coaching model. Hope that clarifies. Todd
I'd be curious to know if you've two or three tricks to pick the stocks you decide to investigate. As in, whether you've any method to quickly eliminate poor-looking stocks. — Denis
Hi Denis,
Thanks for your question. I decided to make it the "Question of the Week" so you can find your answer at my blog http://financialmentor.com/investment-advice/investment-strategy-alternative/three-criteria-for-picking-individual-stocks/511
Again, thanks for your input.
Todd
Todd,
Do you ever advice your clients to explore the benefits of offshore corporations, or IBC's?
Hi Aaron, Thanks for your question. I decided to make it the question of the week and published your answer in my blog here http://financialmentor.com/wealth-building/should-i-use-offshore-corporations-and-ibcs/570 .
Thanks for your input.
Todd
What is your opinion of the investment approach taken by Harry S. Dent?
Steve,
Regarding Harry Dent, I am not an expert on his work and don't really follow him. The reason is because he falls into the category of "financial forecasters" which I consider irrelevant and actually dangerous to profitable investing. I explain why in great detail in this article http://financialmentor.com/free-articles/financial-advice/five-hot-stocks-that-could-double-this-year-and-other-useless-financial-advice
So in a nutshell, I have no idea if he is good or bad. I have no opinion on his work except that because his approach is based on forecasting the future he is irrelevant to earning consistent investment profits.
Hope that helps, Todd
In todays’ turbulent economic times, what tools are available to help improve ones’ financial literacy? What can be done to get those tools in the hands of the unknowing public in a mass scale campaign, in the most efficient and effective way?
Hi Clint,
Hoo boy – that is a loaded question! It is like you are begging me to pitch my services.
The whole reason I am offering the educational resources on this site is because I believe it is the best answer I know to address your question. In other words, I am living your question with this web site and my answer is the education offered by financialmentor.com
The whole reason I started this business was because the vast bulk of what I read and hear in the popular media is inconsistent with what my personal and professional experience has shown to work for attaining financial freedom. I saw the need you are pointing to and decided to try and give back the benefit of my experience by filling that need.
So now I spend my time writing and blogging about my version of financial reality trying as best I can to get the word out on a mass scale. In the end, because of the way search engine ranking and social media works I am truly dependent upon my readers through linking, digg, stumbleupon, etc., to turn this into a mass scale enterprise. I can produce the content, but the only way it can go big and help millions of people is if my readers get enough value from my message that they choose to spread the word.
In other words, you as the reader are in charge of deciding if this web site will be an "efficient and effective way" to "improve financial literacy" for millions of people. Time will tell if people care about my message enough to spread the word…
So in addition to my blog you can search out other trustworthy blogs and valuable sources of alternative information on the internet. That is where you will find the next level in financial literacy I am trying to teach through this web site and my financial coaching services.
In summary, you question is dead on. Yes, there is a huge need. I am trying to serve that need. I hope that answers your question. Your answer exists in alternative financial media like this web site – not the mainstream financial media.
Todd
I have built several businesses ready to go on autopilot.
Websites that sell and deliver products on complete autopilot, business partnerships that generate a revenue %age of sales, affiliate programs with the same structure etc…
How do I reap the fruits of my labors, please?
Thank you.
Norman Cristina (Malta)
Hi Norman,
Per your other comment under my Multiple Streams of Income article you point out you have several online businesses – none of which get traffic. It appears your definition of building an online business is to build a website. I disagree – it is not enough to just build a site as you are unfortunately figuring out already. You must market the site also.
The formula is traffic + conversion = profits. Building a web site only puts you in the starting gate ready to run the marketing race to build traffic. Once you run the marketing race and build traffic then you must successfully convert the traffic to realize profit. It is a three step process of which it appears you have taken just one step so far.
Sorry to be the bearer of bad news, but judging from your own explanation of your "businesses" it appears you are closer to the starting gate than the finish line. It is good that you have started, and there is much more to this game.
One last comment, another lesson that others can take from your inquiry is that you violated the focus rule. You have spread yourself thin among many unrelated web sites that lack a cohesive theme (besides the fact that they all interest you). Success results from focus and not getting spread too thin. Again, review my Multiple Streams of Income article referenced above for a more detailed explanation.
Hope that helps, Todd
Your bio says you started building your net worth at the age of 23 – if you could go back and talk with your young self on your 23rd birthday, what would you tell him?
I turn 23 next month. I'm from an immigrant family and got a wonderful education (engineering) on scholarship, have no debt (I've been a compulsive saver since I was 11 and put money aside for retirement as I earn it, somehow scraping by with the rest), have a few months of emergency savings and an IRA…
…and I don't know where to go from here. I've read all (not kidding… it's a small shelf, though) the books on financial planning at the library but they either (1) already talk about stuff I've done already or (2) are written for folks twice my age with a heck of a lot more money. Meanwhile I head-scratch my way through filing taxes, barely keep financial records (yeah, I know that's bad) and am totally baffled by the idea of a long term financial plan (I don't even know what industry I'll be in 3 years from now!) and the concept of retirement (in my family, you work for a salary until you die… I don't want to do that).
I know what I'd do if I didn't have to worry about money for the rest of my life. I would go to graduate school and become an engineering professor (and change the way undergraduate engineering is taught from the inside out, making it more self-directed and commmunity-based) and set up community workshops with low-cost classes where people could come in and learn how to invent things – to share the joy of creating things to solve your problems, with math and science and technology as your tools under your control instead of Scary Things You Learn By Rote. And fund the development of an open hardware hearing aid platform, because I've wanted to tinker with mine since I was a kid. But I don't know how to get out of the rat race yet.
What's the biggest piece of advice you wish you'd known at 23 that helped you figure out how to escape the rat race?
Hi Mel,
A little sidetrack to set the context first, and then I will answer your question directly…
I avoid oversimplification of wealth building and financial freedom unlike other educators who provide "the secret to wealth" that supposedly can make a difference because it doesn't work that way. It is more complex and that is why financial freedom eludes most people. They want simple answers and smart marketers deliver what they want – unfortunately, it doesn't build wealth for anyone except the marketer.
I'm a dumb marketer because I tell you the truth even though it doesn't sell as well – building wealth is complex. It is no different than any other profession requiring specialized skills and a depth of knowledge. I often tell my financial coaching clients that "investing isn't brain surgery – it is far more complex than that." Think about it, if that wasn't true than why do Nobel prize winners and PhD economists and mathematicians fail brilliantly at it? (ie: Long Term Capital Management and other recent hedge fund failures) It requires a fascinating combination of finance, business, mathematics and emotional intelligence skills – not to mention a little common sense.
I'm not trying to scare you, but I am trying to set your expectations correctly so that you are less susceptible to all the hucksters and marketers as you begin your journey to develop your financial intelligence and build wealth. It will help make the path you travel more direct.
With that said, I specifically published two articles on this site that address your question which I am interpreting as "what are the base skills and knowledge I must know to succeed at investing and building wealth?" I'm also including a link to another article explaining "the cause and effect chain to wealth" that I think you will find helpful…
(1) The Ten Commandments of Investment Strategy
(2) The Ten Commandments Of Wealth Building
(3) Warning! Why Most Wealth Building Systems Are Dangerous Half-Truths
One final comment and I will let you go: I am so thankful I took the effort to learn what I teach here. That is the message I want to leave you with. Yes, it takes effort, but there is no way it is any more effort to figure out how to gain financial freedom and to pursue the dream while you are young than to spend your whole life working for financial mediocrity. Invest in yourself and build your financial intelligence starting now while you are young. You will likely never regret it. I know I am thankful for the journey.
Hope this helps.
Would it be a wise decision to take the cash value that a life insurance has accured and put it into a ira or invest in some other plan to make more money, seems a waste to leave it and be paid the full amount of the policy at the time of death, if we can invest the cash value and make more money than the policy is for. Is it possible
@Caryl – Life insurance is a very narrow area of personal finance that I have no expertise in. Sorry, but I can't answer your question with any depth of knowledge. The reason is simple. Life insurance has no practical application to building wealth because it is an inefficient vehicle for building equity, and once you become wealthy you have no practical need for it. There are some specialized uses for life insurance by the wealthy that are beyond the scope of this reply and not relevant to your question anyway so I won't go into them here. Let me be clear that I am not dead-panning life insurance in this reply: it can be useful as a defensive strategy to protect against a loss you can't afford and it can be useful in business buy-sell situations. In general, it is useful as a defensive strategy. Building wealth and achieving financial freedom is by its nature an offensive strategy. With that said, your question is very straightforward and could be answered by anyone with training in life insurance. The issues are not complicated so you should have little trouble getting an accurate answer from an appropriate resource. Just understand that life insurance is not likely to help you gain financial freedom – that is why most experts recommend you only buy term life and invest the difference in premiums. Hope that helps, Todd
Todd,
I have $57k in a retirement account from a matured CD making 4%. I have the cash and want to invest in something safe…I have another $300k in the IRA in stocks and other CD's and I am 57. What would you recommend investing in and how long? I would love to put it into another CD, short term, but rates are so low. What is your advice?
John
@John – Thanks for you question John, and unfortunately I can't provide personalized investment advice on these pages. There is much more that goes into building a well planned investment strategy than can or should be addressed by email. I teach generalized investment principles which you can choose to apply, but personalized investment advice requires a more intimate relationship with your goals and financial situation than we can adequately address in a public blog or forum. I would be disrespecting your situation to provide a cavalier answer on these pages, and a cavalier answer is all I could offer based on one paragraph of information. Your finances deserve better, and you should settle for nothing less. Hope that helps. Todd
Todd,
I have a hard time using retirement planning calculators (for many reasons), and one of my basic hang-ups is that I don't know how to use them to calculate retirement for both my husband and me together.
Would I do one calculation for me and one for him, and then add the final answers together? Use our joint income, savings, etc. as one figure in the calculator?
We anticipate he'd retire earlier (as he's a few years older than I am), but maybe not live as long (because he's older and male) … just don't know how to work in all these variables. Any advice you can offer?
@ Kathleen, Thank you for your question. I decided to make it the question of the week so you can find your answer at this blog post http://financialmentor.com/retirement-planning/retirement-planning-for-two-the-challenges/2235
Hope that helps,
Todd
Hi Todd,
Am so impressed on you client's testimonials. My husband and I are seeking a financial coach. How much is the cost of your service.
Thank you,
Jeanette
Hi Jeanette,
I love it when readers ask me to plug my services. Yes, many people have experienced success with my financial coaching services: it can be very rewarding. Prices and availability are discussed here…
Thanks, Todd
Hello,
Do you think the only kind of advisor one should hire is a fee based one? I was told by a commission person that when they have a client buy an insurance policy they HAVE to take a commission. Is this true?
@ Carenna – My general rule is to hire only a fee based advisor for investment products. I explain all the reasons why with an in-depth discussion about the inherent conflicts of interest in compensation models here.
However, your question is a little different because it regards insurance. I don't mix insurance sales with investment advice and I have never purchased an insurance product for an investment. I don't go to generalists who sell all financial products (investments, insurance, etc.). I buy only from specialists – experts in their unique fields. The people I buy my home, auto and health insurance from are all specialists – that is all they sell – and they usually represent a single company or product line. They are experts in those product lines and receive commissions on what they sell. I have no problem with a commission in that situation because I shop them based on the insurance product they represent – commission included.
That is very different from investment advisors who all (for the most part) recommend investments from basically the same menu of choices. In this case, you are paying for their expertise in choosing from that menu; therefore, fee based compensation minimizes conflicts of interest best.
In summary, my concern in your question is you are blending two issues. Investments and insurance are two very different animals that I believe are best kept separate. Each is complex enough to merit a specialist in that field. Conflicts of interest and compensation are different for each specialty.
Hope that clarifies.
Todd,
How much do you recommend to have in an emergency fund? I hear anywhere from 3-8 months. I am 44 yrs old, debt free, ready to rev up my emergency fund first and then my retirement. I am planning to increase my retirement to 50% of my monthly pay. Because I will essentially live off of one check (I get paid every 2 wks), I feel I need a lot more in my EF to feel secure. Yet the more I need in my EF, the longer the delay to increase my retirement. Thank you!
@ Bridget – I know this is financial heresy but I have never really made much sense out of the emergency fund concept. To me all liquid assets are an "emergency fund" of sorts.
I encourage people to max out their government sponsored retirement plans first because of the tax advantages and the government penalties if you try and raid the fund provides discipline. Something sorely lacking for most people.
After that put the remainder in savings. You can call it an emergency fund or you can call it retirement assets. In my world they are all net worth under the category of liquid assets. They all compound, grow, get invested and get spent the same.
The significance of the separation has always eluded me.
Hope that makes sense…
Todd,
Your website contains a lot of references to "investment risk management" – which is an area of interest for me. Can you point me to a specific article that contains details about how to go about actual strategies to manage the risk in my portfolio?
Thanks,
John
@John – Unfortunately, there aren't good resources on investment risk management that teach the subject the way I understand it. Most use VAR and other academic based theories that don't work when you need them most – in extreme markets. I teach a multi-pronged approach to investment risk management that is based on sound logic and mathematics. I have the process mapped out in a file in a drawer ready to be compiled into an ebook but unfortunately that won't happen for some time yet – other projects to complete first. Thank for your interest, and make sure to subscribe to the email updates where I will discuss aspects of investment risk management on a regular basis and will also announce the ebook when it is available.
Hi Todd,
I found your website some time ago through another website where you suggested buying an apartment building while young, and then later I saw your name in a few quotes in the Millionaire Real Estate Investor by Gary Keller. In Canada, as you may know we had no real estate implosion, we can currently get a 5 yr mortgage for 3.89 % (a 40 year low), and consequently demand for investment real estate is extremely high. My question is, should/could I treat the extremely low rate as a form of the value discount that is so important in buying any investment? As background, the small city where I live has a vacancy rate of 1 % that is not likely to change anytime soon, real estate prices are very stable, rental yields are high (>10 % per year on purchase price), and there are very few multi-unit buildings to begin with.
Put a different way, would you stay focused on buying at a big discount even if it means potentially waiting 3-5 years? I appreciate all the many nuances in this question that are individual to each property and to each investor, but if you answered just the broadest issue that would be great.
Thanks in advance,
TDW
@Tris – I'm getting quite a few questions around the theme of real estate strategy and buying criteria in the current market conditions. As a result, I have written a post addressing these issues scheduled to publish in February, 2010. It should answer most of your questions.
The short answer is every situation is unique, and it appears the area you are in is vastly different from the conditions I'm experiencing. You will need to adapt your strategy accordingly. You would only wait if you had a good reason to wait, and you should only commit to a purchase if you have a sufficiently compelling deal to justify the risk.
With that said, I would be very cautious of purchasing with any type of financing except fully amortizing, long-term, fixed rate mortgages. No balloons, adjustables, etc.
While we remain in a deflationary, low interest environment for the time being that won't last forever. If your time horizon for ownership is long-term your financing must match that objective or you risk getting in trouble with higher interest rates and other difficulties at the point of refinancing.
Your loan (interest expense) is one of your biggest expenses and risks in owning income property. I encourage investors to limit that risk.
Hope that helps, and watch for the more complete blog post in February 2010.
Todd, I pulled all of my 401k investments (~450k) out of stocks and into a low yielding (~2%) stable interest fund late in 2008. I thus missed the dramatic decline in the market and preserved my 401k. I have no confidence in the market as I believe this is a suckers market. So I missed the uptick but I dont care as I cannot get involved in this kind of market guessing. Comments and suggestions on what to do with my 401k investments? Comsidering foreign markets as an inflation-hedge?
@Glenn – Congratulations on missing the 2007-2008 decline, and thank you for your question.
Unfortunately, I cannot provide personalized portfolio/financial advice on these pages. There are just too many individual nuances to do it justice. Your portfolio deserves the respect of personalized advice, and these pages are limited to general educational content both by law and from a practical standpoint as well.
Hopefully that makes sense.
Hey Todd, I understand, let me word my question differently. I think the available data indicate that this market rally is not based on any real improvement in our economy. In fact, the mounting debt should have a dramatic effect on our economy in the not too distant future. It seems to me that this is a real disaster in the making, the likes of which have never been experienced in the history of our nation. Imagine if the world monetary community refuses to recognize or invest in the dollar? Am I being overly pessimistic? Seems real to me!!!
@ Glenn – Predicting the future is a tenuous process at best. Read my article here http://financialmentor.com/free-articles/financial-advice/five-hot-stocks-that-could-double-this-year-and-other-useless-financial-advice
However, with that said, I will go so far as to state the risk/reward appears grossly unfavorable for stocks in 2010 as stated in two previous posts:
http://financialmentor.com/financial-information/stocks-offer-unfavorable-risk-to-reward-ratio/2701
http://financialmentor.com/investment-advice/risk-management-plan/new-bull-market-or-bear-market-rally/2278
While you make some interesting points, I believe unfavorable risk/reward ratio is sufficient for an investment decision. I try to stay away from extreme language and just focus on getting my investment postions right.
Hope that helps.
QUESTIONS: How should I handle the risk of higher future income taxes in planning my retirement? I've been contributing the maximum to Roth accounts and I plan to do a IRA conversion under the new rules this year (I made too much money to do this in the past). How can I determine how much I should convert and the right overall mix of retirement assets to hold in Roth vs taxable accounts? Besides Roth accounts, what are some other options for managing this risk?
SOME BACKGROUND INFORMATION: I recently analyzed historical US federal tax rates over the last 94 years using data I found on the internet(see http://www.ntu.org/main/page.php?PageID=19). The average marginal federal income tax rate for taxpayers in the highest bracket from 1937-2008 (70 years) was 64.4 percent. The highest federal income tax rate was 94 percent from 1944-45. The highest federal income tax bracket was over 80 percent from 1940-63 and 70 percent or higher from 1936 to 1980. The lowest the highest tax bracket has been in recent US history was 28 percent from 1988-1990. Note that current federal tax rates appear to be on the lower end of the historical spectrum. Based on my analysis, it appears that federal income tax rates (and the associated income tax rules) are pretty unpredictable. This really complicates the task of retirement planning. Like everyone else, I don't want to run out of money in retirement and taxes seem to add yet another significant risk to the equation. I haven't seen a lot of useful information on managing this risk.
@Rick – What a great question!
In fact, I liked it so much I am writing an entire blog post on the subject to be published in February. I agree with your concerns and converted all my retirement assets to Roth IRA's using a very aggressive plan beginning back in 1998 when they were first offered. With that said, there is no security that the government won't change the rules and decide to tax Roth IRA assets later on when they are desperate for revenue.
Additionally, what I find most disconcerting about the tax rates is not only that they trended to the current historic low, but the last time they did the same was right before the Great Depression. The years after the depression as debts and deficits rose the government escalated tax rates dramatically to help pay for it all. The similarities are striking – your concerns are well merited.
Again, this question is so interesting it will require a well thought out post to address all the nuances. Make sure you subscribe and watch for February 2010 posts – no later than March 2010. Thanks again for the question.
Since converting to a Roth IRA would require me to pay taxes at 25 – 28%, I have been trying to think of a stealth way to get money into my Roth and out of my traditional IRA. I have been thinking that by investing in an index fund in one account (or a stock) and then shorting that same fund in the other account, I would in effect transfer dollars from one account to the other and thereby avoid paying taxes on the transfer. My return would be the taxes I avoid paying. What do you think?
@Gary – Interesting idea. I'm a big fan of Roth IRA's and converted substantial sums in the decade following 1998 when they passed into law. My choice was to pay the taxes and my reasoning was simple… I was young, very good at investing, had 60 years to compound tax free, and so the up-front taxes were a no-brainer. In just one decade the math is already overwhelmingly in my favor.
Investing profitably with consistency is a tough enough game to figure out without adding the complication of spending the rest of your life hedging between accounts in an effort to game the system on one year of taxes.
The formula for Roth IRA conversions is well documented on other sites throughout the web and is fairly straightforward. Either it makes sense for you to do it after tax or it doesn't.
My goal is freedom, both personal and financial, and creating investment complication that will last for the duration of my life is the antithesis of freedom. I believe in keeping things simple. If they are complicated then they are probably not correct.
Hope that helps…
I'm still in college and own only one property creating a nice cash flow of $200/mnth, nothing substantial. However my question is since I'm so young and we are in a a state of economic turbulence how can I prove to banks and investors that I can produce good returns for them if they invest in me(besides just showing them the numbers claculated from the property). It seems experience is very important epspecially now, yet I don't have much being so young(especially collateral). I don't believe giving outrageous interest rates will help on the cash flow side for me, yet I understand this is the most profitable time to buy properties at huge discounts, any help would be much appreciated.
@Rob – Interesting question, but unfortunately it is too broad in scope to do it justice in a blog comment – or even an entire article. In a nutshell, other's will only do business with you when it is clearly in their best interests. Your job is to make it clearly in their best interests. Once you have done that then your problem will be solved.
I know that isn't much and there is more to say on the subject, but that should at least point you in the right direction. One final note – be careful what you consider a "huge discount". Study economic history and learn valuation models.
Hope it helps…
Hi Todd, you were lised as a coach on CNN Money and I wonder if you have any need for "Financial Coach Assistant?" I am very passionate about exactly what you are doing, I have an MBA and have worked as teacher in Europe and I have helped a lot of my friends looking at and improving their economy.
@Peter – I would encourage you to submit some unique, educational posts for publishing that teaches this community how to build wealth and invest smarter. Show your capabilities through insightful writing and let's see where it goes. What I'm looking for is education that is a cut above the mainstream half-truths published throughout the web.