financial planning

Women and Money: An Evolved Approach

August 18, 2022

Inspired mature grey-haired woman fashion designer thinking on new creative ideas at workplace. Smiling beautiful elegant classy middle aged older lady small business owner dreaming in atelier studio.

Women at all age levels are redefining how they think about their financial journey. This includes career paths, planning for flexibility, taking charge of family finances, or being successful on their terms.

There are some generational differences among Gen Z, Millennial, Gen X, and Boomer women—but not as much as you’d think. And two main differences that set them apart from men hold across generations:

Women are better investors than men¹
Women are more likely to approach financial planning as a partnership with a trusted advisor²
Women value a financial advisor that listens to them more than men do³

Women tend to outperform men partly because they are more patient investors and trade less. This results in better performance over time and lowers costs.

As to the second result, the easy reach is to point out the men are reluctant to ask for directions when driving too. But it’s a little more complicated than that, and the reasons why women seek financial advice change as they move through their lifecycle.

How they want to partner with a financial advisor is also different. Women want to be sure that the advisor listens to them and understands and respects their priorities.

Gen Z and Younger Millennials

Younger women (Gen Z and younger Millennials) are generally comfortable and confident about money and financial planning.

They’ve grown up with more salary transparency, the proliferation of money-related apps to help with budgeting and investing, and the optimism of youth. They are interested in financial planning that fits their busy lives. They make good salaries, still have debt, are single or newly partnered, and want to get a good foundation in place.

They gravitate to financial planners that offer the planning they need in a way that they can relate to. This includes cash-flow planning, debt reduction strategies, maximizing employee benefits, and above all – helping them improve their financial literacy.

This generation of women understands the value of starting early on the path to financial independence and wants financial planning advice that can help them build a solid foundation.

Older Millennials and Gen X

As women approach the mid-point of their careers, money becomes more complex.

Careers are in full swing, and growing wealth brings to the fore the costs of making a mistake.

These women may not have worked with a financial advisor before. Whether single or partnered, they realize that all the different pieces of their financial lives need to come together in a comprehensive plan.

For them, it’s about creating the option to stop work, scale back work, start a business of their own, or do more meaningful work that may not be as highly paid – while maintaining a current lifestyle and still save for financial goals in the future.

They realize the value of working with a financial advisor that can help them put together all the pieces of their lives:

Equity compensation
What to do with an annual bonus
Tax planning
Saving for education
Taking the right amount of investment risk
Buying a second home or income property
Creating opportunity with their wealth

These women want a trusted partner that explains the “why” to them, and guides them to make choices that are right for them.

As things change, they value being able to make changes to a plan to accommodate new goals or different circumstances.

Older Gen and X-Boomers

These women are driving the decision to work with a financial advisor for themselves and their families. Very often, something has sparked the need to partner with a financial advisor to solve an immediate problem.

A change of job
A spouse’s health issue
Aging parents
Imminent retirement
Death of a spouse
Tax issues

Having a trusted partner to help them sort through the issue calmly in a non-judgmental way is paramount. They want someone to help them fix problems, provide solutions, and ensure that no other avoidable situations are on the horizon.

They may realize that a spouse has always done the financial planning and that it may be time for them to understand the specifics of their wealth. They may want to plan for a retirement that allows them the time they have always wanted with their family.

This group has the most anxiety around money and the least excitement.⁴ They need to develop trust and have an investment plan that helps them achieve their goals – without taking on too much risk.

The Bottom Line

Women are taking control of their and their families’ wealth at all points on the age spectrum.

They value working with a financial advisor, but they are clear in their need to have someone who listens, prioritizes their goals, is a trusted partner, and truly understands how they want to build and maintain wealth.

1.Fidelity 2021 Women and Investing Study.

2, 3, 4. U.S. Bank. Women and Wealth: Exploring the Gender Gap. 2021.

This work is powered by Advisor I/O under the Terms of Service and may be a derivative of the original.

The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Mistakes are Expensive: Financial Planning for Gen X and Gen Y

July 6, 2022

Financial planning has evolved beyond investing assets.

The old model limited comprehensive planning to a wealthy few with high levels of manageable assets. For many people, their first engagement with a financial advisor was when they needed to create a retirement income plan.

The new fee-only model allows financial advisors with experience and knowledge to assist across the landscape of financial life. And a new generation with very different goals is taking advantage of all the elements to create plans that work for them.

Retire early, create “work optional,” or work part-time
Save for kids’ college
Enjoy life now – and save for the future
Invest in a second home or rental property

This generation has created high income and realizes they do not have to wait another 20 or 30 years to have the lifestyle they truly want.

They understand that financial planning is all about tools, tactics, and strategies that can be deployed in tandem to help them keep more of what they make and actively grow their wealth.

It’s about understanding the options, making the right choices for a highly individual path forward, and solving problems.

Cash Flow Planning is the Foundation

Budgeting is the buzzword – but not-so-secret – it doesn’t work.

It’s about making choices to keep spending in check, with almost a scarcity mindset. It is about current expenses and works best over a short-term time horizon.

Cash flow planning looks at the short-term and the long-term. It is a tool to help you make decisions that will help you achieve future goals.

The process helps you identify future income and expenses and plan for big-ticket items.

The result becomes part of your financial plan and dictates changes across your financial plan. Understanding and detailing your flows keeps your investments tracking. It ensures you are realistic about return opportunities and gets you thinking big picture, including minimizing taxes and protecting your assets.

Saving for Kids’ Education

If you haven’t started one yet – the sooner you get saving, the better.

They grow tax-free so that you can build a nest egg for education spending.

You can fund a 529 plan with up to $16,000 per year and still qualify for the annual gift tax exclusion – but you can also fund five years at once if you’re behind and want to catch up. They aren’t just for college – K-12 qualifies too.

Risk Management

Life insurance is critical to keeping your family’s lifestyle and goals on track.

For most people, a term life policy offers the ability to cost-effectively replace your salary during your prime earning years.

The rule of thumb is the policy should be 5-10 times your annual pre-tax income. It may also be time to think about an umbrella liability policy to protect your assets over and above your existing coverage.

But as your income increase – or the potential for income through equity compensation – you want to be sure you minimize risk. An umbrella policy can provide the coverage you need, but it’s important to factor in the cost.

Retirement Savings

Maxing out retirement savings is the best way to lower your taxable income and increase your investment pool for the future.

If you have complex compensation that is bonus-based, you need a strategy to do this that takes into account the current volatile markets.

It’s Not a Rainy Day Fund – It’s a Sunny Day Fund

Having an emergency fund of 3-6 months of expenses in an accessible account is a solid place to start.

But once you’ve achieved that, are maxing out your 401(k), and saving for specific goals on the side, what do you do with excess income?

It’s all about your time horizon. While your emergency fund is in cash, your taxable investment is goal-specific, so having an account that you invest for opportunities can make sense. It can allow for growth, possibility, and above all – optionality.

Tax Planning Keeps Your Income in Play

All of the tactics we addressed above have one thing in common: tax planning. The theory behind effective tax planning is two-fold:

Reduce taxes this year
Reduce lifetime taxes

Tax planning touches every part of your financial life, and it is a series of tactical maneuvers combined with proactive actions. It’s thinking through the impact of every move with a tax lens. Because what you make is ultimately defined by what you keep.

The Bottom Line

Financial planning can help you make the right choices to move towards your goals, but selecting the right partner is important.

This work is powered by Seven Group under the Terms of Service and may be a derivative of the original. More information can be found here.

Donor Advised Funds: Tax Benefits, Growth and Control

September 14, 2021

Alphabet letter wooden blocks with words GIVE in child and parents hands. Family and charity concept

Donor advised funds have been around for decades, but they’ve only become wildly popular vehicles for charitable giving over the last several years. They offer immediate tax benefits as the assets or funds in the donor advised fund convey a tax deduction in the year in which they are gifted. Inside the fund, the assets can grow tax-free and not have to be distributed immediately to a charity.

How popular are they? Total assets in donor-advised funds have more than quadrupled over the past decade, to more than $140 billion. Roughly $1 of every $8 given to charity in America now goes to a donor-advised fund.¹

The funds offer an extremely flexible way to craft a gifting strategy that can allow for the gift to be invested and managed, to potentially grow over time, and for the gifter to maintain control over the assets.

Understanding Donor Advised Funds

A donor advised fund (DAF) is a savings vehicle that allows for charitable donations and tax benefits, all while the donor still has control over where the assets are to be donated. Donor advised funds are irrevocable, meaning that you can’t withdraw funds after donating. Still, you can specify how the donation is to be invested and to which charity you’d like to donate.

Given their versatility and flexibility, DAFs have become a popular choice for those with a charitable heart. According to research from the National Philanthropic Trust, contributions to DAFs in 2019 totaled almost $39 billion, an 80% increase since 2015.²

With donor advised funds, you aren’t limited to donating just cash. Acceptable donations range from stocks and bonds to bitcoin and private company stock. Donors can deduct up to 60% of adjusted gross income if donating cash and up to 30% of adjusted gross income if donating appreciated assets.³

To make sure a donation qualifies for the full benefits, the fund administrator must be a public charity that falls under the qualifications of a 501(c)(3) organization.

How They’re Managed and How to Contribute to One

First, it must be opened at a qualifying sponsor. After selecting a sponsor, donors must make an irrevocable contribution to the fund. At that time, they can take the immediate tax deduction and begin naming beneficiaries and successors for the account.

After making a contribution, the sponsor firm then has legal control over the funds. It can invest the money in accordance with the donor’s recommendations, until the donor is ready to decide which charity they’d like the distribute funds to. Since the fund manages the money and handles the administrative tasks that come with donating to charities, administrative fees need to be considered when deciding on which sponsor to use, as those fees are deducted from the donor’s contributions.

When Does It Make Sense to Contribute to a Donor Advised Fund?

There are many situations where it may make sense to contribute to a donor advised fund, but some of the most common are:

If you own highly appreciated assets
If you’re looking for a tax-deductible transaction
If you want to make a sizable future donation

For example, let’s say someone bought Amazon stock when it was $10/share, and it grew to $3,000/share and they didn’t want to pay capital gains tax on the appreciation. With a donor advised fund, they could donate the stock, and no capital gains would be due.

The Pros and Cons of Donor Advised Funds

When contributing money to a donor advised fund, the donor receives an immediate tax deduction on the amount they contributed, even though the funds may not be distributed to a charity until a future date. This allows for greater control and flexibility when compared to making a regular donation directly to a charity.

Additionally, contributing to a donor advised fund makes record-keeping simpler than making multiple donations to different charities and keeping track of all the documents. This is because the fund can act as a “hub” for all donations, and it will record all contributions and provide a single tax document containing all information needed.

Though versatile, a concern amongst many donors is the fees associated with donor advised funds. For example, the fund might charge a 1% administrative fee, which is being taken directly out of the funds to be donated. The underlying investments may also have fees, so it’s important that you carefully evaluate where your money is going and how fees play a role in the donation.

The Takeaway

Overall, donor advised funds are a versatile tool when it comes to making donations. They provide tax benefits and allow donors to choose where their money goes, all while those donations can grow tax-free until a charity is chosen. However, there’s more to consider than just the benefits, so to make sure it’s the right move to make for your financial situation, it’s recommended to talk with a financial advisor before establishing a donor advised fund.

Frank, Robert. Billionaire philanthropist John Arnold says donor-advised funds are ‘wealth-warehousing vehicles’. CNBC. August 11, 2021.
National Philanthropic Trust. The 2020 DAF Report. NPTrust.org
What is a Donor Advised Fund? Fidelity Charitable.

Eggs in How Many Baskets? Prioritizing Building Wealth While You Build Your Business

June 21, 2021

Don't have too many eggs in one basket when you're a business owner.

Employees of publicly traded companies are often granted company stock as part of the compensation package. From a portfolio management perspective, holding outsize amounts of stock in the same company that provides income can increase risk. If the business were to become wobbly, not only would the stock decrease in value, but the employee could also potentially find themselves out of a job. Employees who are granted stocks often mitigate this risk by selling some of the company stock and reinvesting it in other assets, to diversify growing wealth away from the source of income.

But what about when you own your business?

The situation becomes more complex. One strategy that’s often followed is to put everything except living expenses back into the business while you are growing it, and then sell part of the business or take on a strategic investor to help you begin to diversify elsewhere. Retirement planning is put on the back burner until the business has grown to a point where the business can be monetized.

We think there is a more thoughtful approach that may work for business owners.

The Key: Diversification

While it may seem like a good idea, relying solely on your business as your source of wealth can expose you to a lot more volatility than you think. Whether it’s saving for a rainy day, or longer-term goals like retirement, if all of your wealth is tied up in your business, your business dictates your moves. Creating and regularly adding to a separate investment portfolio may help diversify your assets. And if you invest away from areas you are already exposed to in your business, it can be a powerful tool to help you smooth volatility across both your business and life. For instance, if your business is vulnerable to cyclical sectors, you’ll want to create an investment portfolio that is defensive against those sectors.

Retirement Savings Tax Advantages

There can be significant tax advantages to setting up the right kind of retirement plan for your business and ensuring that you set aside money to invest as close to the maximum as possible every year. While there are of course upfront fees and ongoing costs associated with formal retirement plans, they also allow you to save in a very tax-advantageous manner. Depending on your situation, a 401(k) plan and a cash balance plan are tools you can use to save and look towards a future income stream you can access without having to sell your business. They can also be a great way to attract and retain talented employees.

How About Timing?

When you’re putting everything back into your business with the idea that you’ll eventually fund your retirement by selling all or part of it, you’re essentially making two bets: That you’ll be able to sell when you are ready and not before, and that when you are ready the market for your business will be at a good point for an exit. Having to liquidate early because you are no longer able to run the business, or having to sell when either the business is struggling or the market isn’t right, can limit the amount you realize. You only get to sell it once, and your retirement life will be dependent on what you realize. If you’ve planned for a source of retirement income away from your business, you’ll have more flexibility when it comes time to sell.

The Bottom Line

Even as you’re building your business, it makes sense to think about your personal wealth as a completely different stream of future income. Thinking about diversification across your total asset profile can get you started on a journey to financial independence.