Sherrill St. Germain
Meet our writer
Sherrill St. Germain
A former fee-only planner, Sherrill St. Germain, CFP®, brings a decade of financial planning experience to content she develops for financial services professionals, firms, and publications. She holds a B.S. in Electrical Engineering from Tufts University as well as an MBA from Clark University. Her work and ideas have been featured in books, online, and in magazines including Kiplinger Personal Finance, The Wall Street Journal and Financial Planning Magazine. She can be found at SherrillStGermain.com.
Articles by Sherrill St. Germain
Riding Out Rollercoaster Markets
Riding out market volatility is much like riding a rollercoaster: staying securely in ...Riding Out Rollercoaster Markets Riding out market volatility is much like riding a rollercoaster: staying securely in place with your investments will help safeguard you from those drastic market dips. Raging Bull. Great Bear. Rampage. Dare Devil Dive. These are the names of roller coasters guaranteed to deliver chills and thrills. They’d also make good taglines for investment market conditions of late. As an investor, you may be asking yourself, “What’s happening? Why are there so many hair-raising ups and downs? What safeguards should I be putting in place?” Here’s your guide on the recent market volatility, and how to help protect yourself while riding out this rollercoaster. What’s Up (and Down) Trade wars. Interest rate hikes. Government shutdown. Brexit. These developments sent US investors on a wild ride in late 2018. In case you were distracted by holiday prep, here’s what went down. During the most recent Christmas week, the Dow Jones Industrial Average swung 350+ points on all but one trading day. That included a record-setting plunge of 653 on Christmas Eve. Then another record-breaker happened the day after Christmas. With a whopping 1086 point gain, the Dow clawed back the previous session’s losses and more. But the chills and thrills didn’t start or end there. Both the Dow and the S&P 500 had their worst December since 1931. By year end, the market had suffered its biggest annual decline since 2008 ushered in The Great Recession. En route, investors were treated to half of the ten biggest single day swings in market history, all happening within one year and on the heels of the longest bull market ever. Is this the start of a new normal? Thankfully, a key measure of market volatility suggests not. According to a recent Forbes article, the standard deviation of the S&P 500 was 15.8% in 2018, very nearly matching its 15.6% long-term average. Contrast this to 2017, when the S&P 500 logged a standard deviation of only 6.7%, the second lowest on record and not even half that of 2018. Of course, as recent events have reminded us, that period of relative calm could not last forever. But it may have lulled us into a false sense of security, causing 2018’s return to “the old normal” to feel all the more whiplash-inducing. Along for the Ride Investors aiming to successfully weather volatile markets might want to look to the past for guidance and reassurance. It’s been said that history doesn't repeat itself; rather, it rhymes. So too investment markets. It goes something like this. Roses are red, violets are blue. Markets go up, But must come down too. We can’t guess how far, And we can’t know how long. But for those who are patient, Returns should be strong. Sounds simplistic, trite even, but if you invest, expect ups and downs. You may not love the downs, but just remember that uncertainty typically drives returns. That’s why you having a financial plan suited to your goals and tolerance for risk is key. Everybody knows that – intellectually, at least. As easy as it is to understand all of that, it’s usually harder to practice. Remembering to put good investing habits to use can be difficult when you see the downside of uncertainty at work on your money: The thing needed to put food on the table, a roof over your head, your kids through college, and a retirement in the realm of possibility. “I plan to buy high, sell low,” said no one ever. But on average, investors tend to fare much worse than the market, because that’s exactly what many unintentionally do. One study found that the average equity fund investor underperformed the S&P 500 by almost 3% annually for the two decades through 2016. Sure, fees account for some of that, but most of the gap is the result of human nature driving badly-timed, fear-based decisions. Even investors who get out of the market near market highs still have to guess “right” about when to get back in. With fear driving actions, most investors wait too long. Unfortunately, that often means missing a big chunk of the gains, which usually occur when markets first start to recover. To wit: The S&P 500’s worst 7 quarters since 1940 were followed by a healthy average 23% return in the year that followed. Of course, there’s no guarantee markets will recover from such precipitous drops, whether they are driven by global events, intrinsic value, or fear. But a rational investor with knowledge of market performance through challenging times past would be hard-pressed to bet against it. Stay Buckled in Your Seat Repeated time and again over multiple market cycles, investor behavior during challenging times is a key driver of net worth and, ultimately, the ability to meet your financial goals. During market rollercoasters like this most recent one, it’s important to stay buckled in your seat and stick with your financial plan.
10 Financial To-Dos Before Your First Wedding Anniversary
Planning your financial life with your spouse can be very stressful. Here are ten ...10 Financial To-Dos Before Your First Wedding Anniversary Planning your financial life with your spouse can be very stressful. Here are ten considerations you should talk about before reaching your first anniversary. All you need is love, sang the Beatles. Sonny and Cher were warned their love wouldn’t pay the rent. But when it comes to money and matrimony, perhaps Cyndi Lauper said it best: money changes everything. If your goal is more “for richer” and less “for poorer,” what financial to-dos should you check off before your first anniversary? Document the financial state of the union. In a perfect world, you and your beloved have been talking about money at least since you decided to tie the knot. If not, job #1 is full disclosure. Unromantic as it sounds, an honest view of your combined financial situation is essential to making the most of your money as a couple. That includes: Assets and liabilities Income and expenses Credit score and history Savings strategies Employee benefits Discuss the softer side of money. Your financial success as a couple is not solely a numbers game, so be sure to talk about the less quantifiable aspects of money management. Risk tolerance Successes and challenges Money attitudes Relationships with financial professionals Interdependencies with other family members Lay a solid foundation. Your next priority is setting yourselves up to withstand the inevitable bumps in the road. Do you have an emergency fund of three to six months of combined living expenses? Since two might live as cheaply as one, you could be sitting on extra cash that might be put to better use. A healthy emergency fund will only take you so far if it’s offset by unmanageable debt. If either of you has high-interest rate debt or a poor credit record, make fixing that a top priority of your financial plan. Check your insurance coverage. Changes to living arrangements call for reevaluation of home, auto, and umbrella insurance policies. Life, disability, and long term care coverage also bear review. Be sure coverage amounts, deductibles, and waiting periods match your new circumstances. Also, find out if you’re eligible for family discounts. Talk about death… It’s important for new couples to come up with an end game. That’s especially true if this isn’t your first walk down the aisle, and you’re balancing the needs of a blended family. So update your estate plan, as well as beneficiaries on any accounts that pass outside the estate. Unless you want your ex to end up with your IRA. …and taxes. One thing’s certain: your new filing status will change your tax situation. That might mean a new W-4 to adjust income tax withholding. Or it could mean big planning opportunities, particularly if your wedding coincides with a job change, new baby, or other life events. To get an idea of what to expect, run a combined tax projection or work with a financial professional. Capture free money. Besides tax breaks, another likely source of free money is employee benefits, so check that you’re making the most of yours. For example, if one spouse has a better 401k or isn’t receiving the full employer match, consider directing more retirement savings to that plan. Review allocations to flexible spending accounts, employee stock plans, and Roth vs. traditional 401k in light of your combined finances. And don’t forget to compare medical, dental, and vision plans to see if one of you can get a better deal by switching. Dream a little dream for two. With that key infrastructure in place, next comes the fun part: putting your money to work funding your dreams. That starts with visualizing what you– as individuals and as a couple– would like your money to do for you and your family. This list might include things like pay off debt, start a family, retire early, or travel the world. That’s a great start, but aim to refine your goals to be as specific and measurable as possible: Pay off $7,000 credit card balance before 2019 ends. Buy a $400,000 home with 20% down in 3 – 5 years. Pay for 50% of the kids’ costs to attend a public university. Retire at 55 with annual living expenses of $65,000 + $7,500 travel budget. Write up a plan and start implementing. Once you’ve inventoried your combined resources and goals, you are in a position to come up with a financial plan. Like any good plan, it should address who, what, when, where, and how. Will you merge finances, keep them separate, or something in between? Who will be responsible for which tasks? How will you keep each other up-to-date? What financial institutions and professionals will you work with? It may be difficult to let go of existing relationships, but keep in mind potential cost savings from streamlining accounts. Evaluate your cash flow. If income exceeds expenses, where will you direct the surplus cash flow to best meet your goals? If not, what expenses will you cut? Is your portfolio allocated in a way that matches your combined goals, timelines, and risk tolerance? Is it cost-effective? Determine the actions needed to get your money working toward your goals. This first plan will likely be the personal finance equivalent of what writers call a “crappy first draft,” even if you’re working with a financial planner. Don’t let that deter you. Even if you’re 100% wrong about your first year of money in marriage, you’ll learn so much in contemplating it, you’ll be better positioned to respond as events unfold. So just take your best shot and get started. Schedule next year’s financial review. Plans are worthless, but planning is everything. –Dwight D. Eisenhower Your newly minted financial plan provides a roadmap to get you moving in the right direction. But it won’t be long before time renders it worthless. That’s to be expected, because change happens and new information comes to light constantly. The greatest rewards go to those who consistently course correct to accommodate that change. So put next year’s financial review on the calendar now and make a commitment to check in at least annually. After “I do,” it could be the most precious vow you’ll ever make.
Women and Money: Bridge The Gap
It’s no secret that women fight more of an uphill battle than male peers in their efforts ...Women and Money: Bridge The Gap It’s no secret that women fight more of an uphill battle than male peers in their efforts to reach personal financial goals. $430,480. That’s what it costs to be a woman, according to the National Women’s Law Center. It’s the wage gap that results from a lifetime of being paid less than men. It’s no secret that women fight more of an uphill battle than male peers in their efforts to reach personal financial goals. That nearly half-million dollar wage disparity may be the best known financial hurdle that a number of women face today, but it’s not the only one. Let’s take a look at what other financial hurdles women face, issues they should reconsider, the opportunities they should take advantage of, and what it will take to bridge the gap. The Hurdles You Should Pay Attention To Earning Money The wage gap women face starts with lower pay for comparable work. More time out of the workforce (15% of working years vs. 2% for men), primarily for family caregiving, compounds the problem. On top of that, when women are fired from their role, they tend to take an average 24% pay cut at their next job, as compared to the 1.3% increase men see. Spending Money: The “Pink Tax” Not only do women often earn less for comparable work, they also tend to pay more for comparable goods and services. This so-called “pink tax” is levied on everything from hair care to healthcare. In some cases, it extends to financial products such as mortgages, business loans, and annuities. The Issues You Should Reconsider How confident are you? A mere 9% of women think they are better investors than men, per a recent study. Traditional gender roles had them showing up late to the party on this, so a case of newbie nerves is to be expected. The problem is that this confidence gap results in reduced risk tolerance. Women wait longer to invest and, when they finally do, they tend to stash larger portions of their money in safer, but low earning, accounts. Compounded over time, this more conservative approach can exact a big toll on women’s net worth. Are you considering your life expectancy as much as you should? According to 2017 Center for Disease Control data, the life expectancy for American women is 81.6 years. This means, on average, women get 5 more years than men to enjoy the good life, whether that’s globe hopping, playing golf, or spending time with the grandkids. But it’s also 5 extra years of living expenses to fund. And some of those additional years can be extra costly as healthcare expenses soar in later life. Thanks to the hurdles faced en route to retirement, women are forced to cover these higher costs with a comparatively smaller pool of resources. That can include: Lower Social Security benefits Reduced pension payouts Smaller nest eggs The Opportunities You Should Take Advantage Of Behavioral Finance Is On Your Side On the plus side, some gender differences work in women’s favor as do demographic trends. For starters, studies show that women are better savers than men. In particular, they have higher 401(k) participation rates and those that do participate, contribute a higher percentage of pay. Furthermore, behavioral finance research has found that women are also better long-term investors. That’s primarily because, once invested, they are more inclined to “stay the course” regardless of market conditions. Not only does this reduce unprofitable panic selling, it minimizes fees and capital gains taxes. Additional data suggests that this may ultimately result in generally higher rates of return. Shifting Gender Roles Shifting gender roles are affording women more opportunities to leverage those inherent advantages. With 2/3 now acting as primary or co-breadwinner, it’s not surprising that women, and the men in their lives, want to make the most of that hard-earned money. Accordingly, many are eager to learn about financial planning—92 percent according to one study. This hunger for information has spawned a treasure trove of resources. That includes a burgeoning cadre of role models of all stripes, from finally-debt-free millennial bloggers to women CFOs. Watching these prominent women in finance talk openly and confidently about money is inspiring others to overcome cultural barriers and do the same. The cost of ignoring women is finally dawning on the historically male-centric financial services industry. The push to better serve women remains in its infancy, but an estimated $800 billion missed market opportunity is driving it forward. Bridging the Gap When it comes to gender and money, things are moving toward parity with increasing momentum, and there’s a few steps women can take to accelerate the process even more. Here’s how. Just start. Fear of making mistakes often prompts women to delay important financial decisions until fully versed in the matter at hand. While it’s smart to look before you leap, losing out on the magic of compound interest can be just as costly as imperfect execution. Get smart. Financial education is one of the few investments that comes with little to no risk. These days, it’s easily accessible via a startling assortment of seminars, blogs, podcasts, videos, forums, and more—many free or low cost. Take part. Splitting up your money management “To Do” list with a spouse or financial planner makes good sense, but women should stay intimately involved to ensure their interests are represented. The journey to women’s financial parity is far from over, but the progress has been impressive. And with the collective impact of more and more women taking control of their money, maybe someday “the gender gap” can be relegated to the dustbin of history.
Your Investments: Why Neatness Counts
It’s not a perfect science, but when it comes to investing, neatness counts. Or perhaps ...Your Investments: Why Neatness Counts It’s not a perfect science, but when it comes to investing, neatness counts. Or perhaps more accurately, neatness adds up to real dollars that compound over time. It's six a.m. Do you know where your investments are? Avid readers may recognize this line as a takeoff on an oft-quoted blurb from Jay McInerney’s seminal work Bright Lights, Big City. You likely won’t find this book in the Personal Finance aisle, but most investors could benefit from asking themselves this question. If your answer is no, it may be because you have accounts at so many financial institutions that you can’t keep track. But hey, at least you get the side benefit of diversification, right? Maybe not. A scattershot approach often ensures only quantity, not quality, in your investment mix. Let’s explore – and bust – the myths and misgivings standing between you and a streamlined set of investment portfolios that seek to fulfill on your financial goals. Entropy Happens in Your Investment Accounts According to the laws of thermodynamics, the total entropy (lack of order or predictability) of the universe is always increasing. How does that apply to your investments? Left unchecked, your investment accounts may undergo a similar decline into disorder. Often, it starts as a single 401k that never got rolled over. Fast forward a few years, and the problem has multiplied into a hot mess of old accounts at a laundry list of financial institutions. Sometimes it’s easy to blame the torrid pace and frequent job changes typical in today’s workplace for the proliferation of accounts and portfolios gone wild. You get caught up in other urgent tasks associated with switching jobs. Your old 401k administrator introduces errors and delays. You don’t love your new 401k plan, but don’t know where else to go. You rolled over your last 401k, but you’re not happy with where it ended up. You’ve heard there are good reasons not to do a rollover, but haven’t had time to investigate. Old retirement plans aren’t the only driver of entropy across your investments. If you are fortunate enough to have brokerage accounts, IRAs, 529 plans, inherited assets, etc., these work to compound the effect. The resulting predicament can make it difficult to see the big picture and make the most of your hard-earned money. So don’t wait—Consolidate. It can literally pay to stay on top of things (as we’ll explain below), combining duplicate accounts as they crop up rather than waiting. In the battle against financial chaos, an ounce of prevention is worth a pound of cure. The Myth That Reinforces Mess in Investing “Consolidate early and often” can be the best course of action, but that’s easier said than done. Besides the stumbling blocks above, there’s often something else getting in the way: the persistent (but pernicious) belief that “dispersed assets = diversified assets = lower risk.” Don’t be fooled. A few carefully chosen investments can be equally or more diversified than a mishmash of legacy accounts. The simple fact that you’re working with a known quantity means it’s easier to ensure your overall portfolio of investments adds up to the right mix of assets for you. And it’s more likely to stay that way, especially for investors with automatic rebalancing. That means portfolio drift, changes to management, costs, or objectives of component funds, and other risks don’t go unnoticed for years on end. A scattershot approach costs you. Mistakes: It’s easy to forget about accounts when they number well into the double digits. “In New York State alone, there is more than $15.5 billion in unclaimed funds,” per CNBC. Never mind the risk of errors at tax time when you’ve got forms coming at you from a multitude of brokers. Retirees who withdraw less than their Required Minimum Deduction face a stiff 50% tax rate on the amount not withdrawn. Opportunity Costs: As a general rule, the more you hold with any particular financial institution, the higher the service level and the lower the fees. The exact thresholds vary, but it’s true at all levels: Total assets, account, fund. For example, investing more in any given fund may mean you are eligible for a share class with a lower expense ratio. Higher balances may mean account fees are waived. Further, as your total assets under a firm’s management grow, the cost of advice may fall, and you may be eligible for valuable perks, such as access to tax specialists and invitations to special events. Effort: You and/or your financial advisor may end up wasting effort on low value tasks like chasing down statements and forms, fixing mistakes (e.g. over contributions), and evaluating essentially duplicate funds. This diverts attention from important activities like rebalancing, tax planning, and specifying proper beneficiaries. Speaking of beneficiaries, keep in mind that if something happens to you, leaving behind a bloated portfolio makes life hard for loved ones. For greater benefits at a lower cost, the choice is clear: It’s time to let go of the misconception that “quantity = quality” and start reaping the rewards that can come with a lean, well-managed set of investments aligned to your financial goals. Consolidate or Aggregate Your Accounts It can be hard to implement and maintain a cohesive financial plan when your money is all over the place. Your mission then is to hold the fewest investments in the fewest accounts with the fewest providers needed to achieve your goals. Of course, the exact number of “moving parts” varies with the circumstances of each investor. A millennial targeting all of their investments towards retiring? A single 401k or IRA might be all you need for now. Conversely, for a high income, mid-life couple with college-bound kids, the benefits of holding targeted assets in 529, Roth, or other accounts might outweigh the costs. An important benefit of Betterment is that your accounts can be grouped within your financial goals. It’s both a visual aid and the way Betterment provides financial advice. You can even align accounts held outside the platform, like 401(k) plans or 529s, to your preferred financial goals. From there, Betterment offers a recommended portfolio for the goal based on the holdings held elsewhere. So for example, if you have a brokerage account heavy on stocks, Betterment might suggest you hold more bonds, depending on your goals. That being said, you may have good reason to keep old accounts. There are good reasons to hold off on consolidating certain accounts, however. While these “gotchas” may not matter to one investor, they can be deal breakers for another. Examples include: Transferring an old account to a new provider might require liquidating some investments. This move could result in undesirable fees or tax consequences. Similar account types may boast different features. For example, although 401k’s and IRA’s are substantially interchangeable, the two are subject to a few important distinctions. If a 100% streamlined portfolio isn’t practical for you, do the next best thing: Fake it. Using account aggregation can help you see a complete view of your investment assets even if they don’t all live under the same roof. If your favorite financial institution doesn’t offer this, consider using a tool like Betterment or Mint to sync accounts. Less is More It’s not a perfect science, but when it comes to investing, neatness counts. Or perhaps more accurately, neatness adds up to real dollars that compound over time. So if your portfolio has gotten a bit messy as of late, don’t wait to whip it back into shape. The sooner you tighten your assets, the sooner you can reap the benefits of well-managed money.